The Implications of section 11 arbitration and conciliation act, 1996: A Detailed Analysis

 

 

Introduction

The Arbitration and Conciliation Act, 1996 represents a watershed moment in India’s alternative dispute resolution landscape. At the heart of Arbitration and Conciliation Act framework lies Section 11, which governs the appointment of arbitrators and serves as the gateway to arbitration proceedings. The provision has undergone significant transformation through amendments in 2015 and 2019, reflecting the evolving jurisprudence and India’s commitment to establishing itself as an arbitration-friendly jurisdiction. This article examines the intricate mechanisms of Section 11 arbitration and conciliation act, 1996, the legal principles it embodies, and the judicial interpretations that have shaped its application over nearly three decades. 

Understanding Section 11: The Constitutional Framework

Section 11 of the Arbitration and Conciliation Act, 1996 establishes a detailed procedure for appointing arbitrators when parties to a dispute cannot agree on the appointment themselves. The provision is rooted in Article 11 of the UNCITRAL Model Law on International Commercial Arbitration, though the Indian adaptation has developed its own distinct character through legislative amendments and judicial pronouncements [1].

The fundamental structure of Section 11 recognizes party autonomy as its cornerstone. Under Section 11(2), parties enjoy complete freedom to agree upon a procedure for appointing arbitrators, subject to the limitations prescribed under Section 11(6). This autonomy extends to determining the nationality of arbitrators, as Section 11(1) explicitly states that a person of any nationality may be appointed as an arbitrator unless the parties have agreed otherwise. This liberal approach facilitates international commercial arbitration and demonstrates India’s alignment with global arbitration practices.

When parties opt for a three-arbitrator tribunal under Section 11(3), the default mechanism requires each party to appoint one arbitrator, and these two appointed arbitrators then select the third arbitrator who serves as the presiding arbitrator. For sole arbitrator appointments, if parties fail to reach consensus within thirty days of receiving a request from one party, the matter escalates to judicial or institutional intervention as prescribed under the Act.

The Judicial versus Administrative Debate: SBP & Co. v. Patel Engineering Ltd.

The interpretation of Section 11 underwent a fundamental shift with the landmark judgment in SBP & Co. v. Patel Engineering Ltd. [2], decided by a seven-judge Constitution Bench of the Supreme Court on October 26, 2005. This decision overturned the earlier ruling in Konkan Railway Corporation Ltd. v. Rani Construction Pvt. Ltd., which had characterized the Chief Justice’s role under Section 11(6) as administrative in nature.

In SBP & Co., the Supreme Court held that the power exercised by the Chief Justice of the High Court or the Chief Justice of India under Section 11(6) constitutes a judicial power, not an administrative function. The Court reasoned that when the statute confers power on the highest judicial authority in a state or the country, such power must be discharged judicially. The Court observed that determining jurisdictional questions, verifying the existence of an arbitration agreement, and ensuring that the applicant is a party to such agreement are essentially adjudicatory functions that affect the rights of parties.

The judgment established several critical principles. First, it clarified that the Chief Justice or designated judge must decide preliminary aspects including their own jurisdiction, the existence of a valid arbitration agreement, the existence of a live claim, the existence of conditions for exercising power, and the qualifications of arbitrators. Second, it determined that once the Chief Justice or designate has resolved these jurisdictional questions, the arbitral tribunal cannot subsequently challenge the validity of its own constitution. Third, the decision held that appeals against orders passed under Section 11(6) lie only under Article 136 of the Constitution of India to the Supreme Court, thereby limiting appellate remedies.

The implications of this judgment were far-reaching. While it provided clarity and enhanced the credibility of the arbitral process by involving the highest judicial authorities, it also expanded the scope of judicial intervention at the appointment stage. This created delays and transformed what should have been a simple administrative function into a more elaborate judicial proceeding, sometimes resembling mini-trials on preliminary issues.

The 2015 Amendment: Attempting to Limit Judicial Intervention

Recognizing the unintended consequences of the SBP & Co. judgment, Parliament enacted the Arbitration and Conciliation (Amendment) Act, 2015, which introduced significant changes to Section 11. The most crucial addition was Section 11(6A), which provided that the Supreme Court or High Court, while considering any application under Section 11(4), (5), or (6), shall confine its examination to the existence of an arbitration agreement, notwithstanding any judgment, decree or order of any Court [3].

This amendment sought to curtail the expansive judicial review that had developed post-SBP & Co. and reinforce the principle of kompetenz-kompetenz enshrined in Section 16 of the Act, which grants arbitral tribunals the power to rule on their own jurisdiction. The 2015 Amendment also introduced timelines, requiring disposal of Section 11 applications within sixty days from the date of service of notice on the opposite party, though this timeline remains directory rather than mandatory.

The legislative intent was clear: to minimize judicial intervention at the threshold stage and allow arbitral tribunals to decide substantive jurisdictional questions. However, judicial interpretation of Section 11(6A) remained inconsistent. In National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd., the Supreme Court categorized preliminary issues into three categories: those which the Chief Justice must decide, those which he may choose to decide, and those which must be left exclusively to the arbitral tribunal. This framework, while attempting to provide clarity, still left room for judicial discretion in determining which issues fell within each category.

The TRF Limited Judgment: Ensuring Impartiality in Appointments

The Supreme Court’s decision in TRF Limited v. Energo Engineering Projects Ltd. [4], delivered on July 3, 2017, addressed a critical question regarding the appointment of arbitrators by ineligible persons. The case arose from a dispute where the Managing Director of one party, who was himself ineligible to act as an arbitrator under Section 12(5) read with the Fifth and Seventh Schedules introduced by the 2015 Amendment, purported to nominate another person as arbitrator.

The Supreme Court held that once an arbitrator becomes ineligible by operation of law, such person loses the power to nominate another as arbitrator, irrespective of whether the nominated person is independent and impartial. This ruling emphasized that the statutory prescription of ineligibility extends not merely to acting as an arbitrator but also to the power of nomination. The Court’s reasoning was grounded in the principle that allowing an ineligible person to nominate an arbitrator would circumvent the very purpose of the ineligibility provisions, which seek to ensure impartiality and independence in the arbitral process.

The practical impact of this judgment was substantial, particularly for public sector undertakings and government contracts where arbitration clauses traditionally empowered employees or officers of one party to appoint arbitrators. The decision reinforced the 2015 Amendment’s objective of eliminating unilateral appointments and ensuring that arbitral tribunals are constituted through fair and impartial procedures. In Bharat Broadband Network Limited v. United Telecoms Limited, the Supreme Court later clarified that the TRF Limited principle applies retrospectively to all arbitrations commencing from October 23, 2015, when the 2015 Amendment came into force.

The 2019 Amendment: Shift Toward Institutional Arbitration

The Arbitration and Conciliation (Amendment) Act, 2019 marked a paradigm shift in India’s arbitration architecture by introducing provisions aimed at promoting institutional arbitration. The amendment inserted Section 11(3A), which empowers the Supreme Court and High Courts to designate arbitral institutions, graded by the Arbitration Council of India under Section 43-I, for the purposes of appointing arbitrators [5].

Under the amended framework, when parties fail to appoint arbitrators as per their agreed procedure, the appointment is to be made by arbitral institutions designated by the Supreme Court (for international commercial arbitrations) or by the High Court (for domestic arbitrations), rather than by the courts themselves. This structural change aimed to reduce the burden on the judiciary and leverage the expertise of specialized arbitral institutions in making appointments.

The 2019 Amendment also deleted Section 11(6A) and Section 11(7), which had provided for limited judicial scrutiny and finality of appointment decisions respectively. This deletion was necessitated by the shift to institutional appointments, as arbitral institutions would not be exercising judicial power in the manner that courts do. The amendment retained Section 11(6B), which mandates prospective arbitrators to make disclosures regarding their independence and impartiality before appointment.

However, implementation of these provisions has been problematic. Part IA of the Act, which establishes the Arbitration Council of India and provides for grading of arbitral institutions, has not been fully notified and operationalized. Consequently, the pre-2019 Amendment framework continues to govern in practice, with courts still appointing arbitrators under Section 11. The first proviso to Section 11(3A) does provide that in jurisdictions where no graded arbitral institutions are available, the Chief Justice of the concerned High Court may maintain a panel of arbitrators to discharge the functions of arbitral institutions.

Limitation for Section 11 Applications

A significant interpretive challenge concerns the limitation period for filing applications under Section 11, as the provision itself does not prescribe any specific timeframe. The Supreme Court in Bharat Sanchar Nigam Ltd. v. Nortel Networks India Pvt. Ltd. held that Article 137 of the Limitation Act, 1963, which provides a residual limitation period of three years for applications not otherwise specified, applies to Section 11 applications [6].

However, the Court has also recognized that a three-year limitation period may be inconsistent with the Act’s emphasis on expeditious dispute resolution. In Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd., the Supreme Court developed the concept of a “breaking point”—the point at which the right to apply under Section 11 accrues. The Court held that mere existence of a dispute does not trigger the limitation period; rather, it begins when the procedure for appointment of arbitrator under the arbitration agreement has been invoked and has failed, or when it becomes evident that the procedure cannot be followed.

This jurisprudence reflects the tension between providing parties adequate time to attempt settlement while ensuring that arbitration, when invoked, proceeds without undue delay. The matter gains further complexity with the 2019 Amendment’s shift toward institutional appointments, as it remains unclear whether Article 137 would apply with equal force when arbitral institutions, rather than courts, handle appointments.

The Scope of Examination Under Section 11

The appropriate scope of judicial or institutional examination at the appointment stage has been the subject of considerable debate. While the 2015 Amendment sought to limit this scope to examining the existence of an arbitration agreement, judicial practice has varied. In Duro Felguera S.A. v. Gangavaram Port Ltd., the Supreme Court held that courts must adopt a prima facie standard when examining the existence of an arbitration agreement, without delving into disputed questions of fact that require detailed evidence.

Similarly, in Mayavati Trading Pvt. Ltd. v. Pradyuat Deb Burman [7], decided after the 2019 Amendment, the Supreme Court clarified that the legislative intent behind omitting Section 11(6A) was to account for the shift to institutional appointments. The Court held that issues such as accord and satisfaction, which had been examined under the pre-2015 Amendment regime, should not be examined at the appointment stage. However, the judgment stopped short of comprehensively addressing what scope of examination arbitral institutions should undertake when they become operational.

Courts have also grappled with issues of arbitrability, validity of arbitration agreements under Section 7, and whether specific disputes fall within the ambit of arbitration clauses. In Arasmeta Captive Power Company Pvt. Ltd. v. Lafarge India Pvt. Ltd., the Supreme Court reiterated that questions regarding whether claims fall within the definition of disputes covered by an arbitration clause should be left to the arbitral tribunal rather than being decided at the appointment stage.

Challenges in Implementation and Future Directions

The evolution of Section 11 reflects the ongoing challenge of balancing competing interests: party autonomy, judicial oversight, institutional efficiency, and the imperative of impartial arbitration. Several challenges persist in the current framework.

First, the non-operationalization of the Arbitration Council of India and the institutional appointment mechanism envisaged by the 2019 Amendment creates uncertainty. Without graded arbitral institutions and clear regulatory oversight, the promise of institutional arbitration remains largely unfulfilled. The quality and capacity of arbitral institutions vary considerably across India, and without robust grading criteria and regulatory mechanisms, mere designation of institutions may not achieve the desired objectives.

Second, the deletion of Section 11(7) has opened possibilities for wider judicial review of appointment decisions through writs under Article 226 and Article 227 of the Constitution, potentially undermining the finality that the provision originally sought to provide. While appeals against appointment orders remain limited, the availability of constitutional remedies may lead to increased litigation at the threshold stage.

Third, questions regarding the appealability of orders passed by arbitral institutions and the scope of their examination remain unanswered. If institutional decisions are subjected to extensive judicial review, the very purpose of reducing court burden and expediting appointments would be defeated. Clear legislative or regulatory guidance on these aspects is essential.

Fourth, there is a need for greater consistency in judicial interpretation. Despite amendments aimed at restricting judicial intervention, divergent approaches persist across High Courts, creating uncertainty for parties and potentially affecting India’s competitiveness as an arbitration seat.

Conclusion

Section 11 of the Arbitration and Conciliation Act, 1996 stands at the intersection of party autonomy, judicial intervention, and institutional efficiency. Its evolution from a relatively straightforward provision to a complex framework reflects the maturation of arbitration law in India and the challenges inherent in operationalizing legislative intent.

The journey from SBP & Co. v. Patel Engineering Ltd. through the 2015 and 2019 Amendments demonstrates Parliament’s commitment to reducing judicial intervention and promoting institutional arbitration. Judgments like TRF Limited have strengthened safeguards against unilateral appointments and reinforced principles of impartiality. However, the full realization of India’s arbitration potential requires consistent implementation of the 2019 Amendment’s institutional framework, development of robust arbitral institutions with transparent grading mechanisms, and judicial restraint in exercising supervisory jurisdiction.

The success of Section 11’s framework will ultimately be measured not by the sophistication of its provisions but by its practical efficacy in facilitating fair, efficient, and timely appointment of arbitrators. As India seeks to position itself as a preferred arbitration destination, the operationalization of institutional appointments, coupled with consistent judicial interpretation and enhanced capacity building of arbitral institutions, will prove decisive. The provision’s continuing evolution offers both challenges and opportunities in advancing India’s arbitration ecosystem toward global competitiveness.

References

[1] iPleaders. “Section 11 of Arbitration and Conciliation Act, 1996.” Available at: https://blog.ipleaders.in/section-11-of-arbitration-and-conciliation-act-1996/ 

[2] Indian Kanoon. “S.B.P. & Co vs Patel Engineering Ltd. & Anr on 26 October, 2005.” Available at: https://indiankanoon.org/doc/1641452/ 

[3] IBC Laws. “Section 11 of Arbitration and Conciliation Act, 1996: Appointment of arbitrators.” Available at: https://ibclaw.in/section-11-appointment-of-arbitrators/ 

[4] Indian Kanoon. “Trf Ltd vs Energo Engineering Projects Ltd on 3 July, 2017.” Available at: https://indiankanoon.org/doc/192167806/ 

[5] Legal Affairs Ministry, Government of India. “The Arbitration and Conciliation (Amendment) Act, 2019.” Available at: https://legalaffairs.gov.in/sites/default/files/arbitration-and-conciliation(amendment)-act-2019.pdf 

[6] Dispute Resolution Blog, Cyril Amarchand Mangaldas. “An Analysis of Limitation for Appointment of Arbitrator Under Section 11.” Available at: https://disputeresolution.cyrilamarchandblogs.com/2024/02/an-analysis-of-limitation-for-appointment-of-arbitrator-under-section-11-of-the-arbitration-conciliation-act-1996/ 

[7] SCC Times. “Section 11 after 2019 Amendment Act – An Opportunity to Strengthen Institutional Arbitration in India.” Available at: https://www.scconline.com/blog/post/2020/12/05/section-11-after-2019-amendment-act-an-opportunity-to-strengthen-institutional-arbitration-in-india/ 

[8] Latest Laws. “Section 11 of the Arbitration and Conciliation (Amendment) Act, 2019: A Procedural Conundrum.” Available at: https://www.latestlaws.com/articles/section-11-of-the-arbitration-and-conciliation-amendment-act-2019-a-procedural-conundrum 

[9] Via Mediation Centre. “Analysis of S.B.P. and Co. V Patel Engineering Ltd. And Ors.” Available at: https://viamediationcentre.org/readnews/MTY3/Analysis-of-SBP-and-Co-V-Patel-Engineering-Ltd-And-Ors