Time is of the Essence: Judicial Intervention in the Appointment of Arbitrators: Analysing the Order in ‘Shree Vishnu Constructions’

The Supreme Court of India recently passed an important order in M/s Shree Vishnu Constructions v. The Engineer in Chief, Military Engineering Service & Ors. (‘Shree Vishnu Constructions’), which addresses the issue of delays in the appointment of arbitrators by High Courts. The order fills a gap in the Arbitration and Conciliation Act, 1996 (‘the Act’), which does not prescribe a time limit for the appointment of arbitrators. Firstly, the Court said that all applications filed under Sections 11(5) and 11(6) of the Act that have been pending for more than a year from the date of filing must be decided within six months from the date of this order. To this end, it directs the Registrar General of the respective High Court to submit a compliance report. Secondly, it noted that all efforts must be made by High Courts to dispose of such applications ‘at the earliest and preferably within a period of six months from the date of filing of the applications’.

Arbitration is a private mode of dispute resolution that aims to be quick and effective. For arbitration to work efficiently, timely assistance by courts is necessary. It has been found that most applications made before courts for the appointment of arbitrators have been kept pending for years, frustrating the parties’ intent to resolve disputes expeditiously. This defeats the objective of the Act.

Appointment of arbitrators in India: The role of Courts

In India, parties generally opt for ad hoc (as opposed to institutional) arbitration, which means that the disputing parties determine all aspects of the proceedings. There is no culture of designating institutions for the appointment of arbitrators. The appointment of arbitrators is primarily the right of the parties to the dispute—this is referred to as party autonomy.

Courts play multifarious roles in the arbitral process, from assisting, supporting to supervising. In the event of a deadlock, the parties’ only recourse is to approach the High Court or Supreme Court under Section 11 of the Act. Typically, this includes (i) failure to prescribe a procedure for the appointment of arbitrators, (ii) failure to adhere to the procedure prescribed under the arbitration agreement, or (ii) failure to reach consensus on such appointment.

In such cases, the Court’s role is to provide timely assistance by either appointing an arbitrator or designating a person or arbitral institution. This is an important intervention contemplated under the Act. It is both crucial and expedient to the initiation of the arbitration process. The absence of a prescribed time limit for the courts to dispose of such applications has led to severe delays in the process, which undermine the purpose and spirit of arbitration.

International arbitration: Select best practices

Unlike the Indian scenario, in the case of international arbitration, it is usual practice for the disputing parties to either designate an arbitral institution or subscribe to institutional rules which have elaborate procedures for the appointment of arbitrators. However, these institutional rules follow different approaches.

• According to the 2013 United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules, parties can subscribe to the UNCITRAL Rules or designate any arbitral institution for the appointment of arbitrators. The designated arbitral institution then appoints the arbitrator. If this process fails, then the Permanent Court of Arbitration acts as the appointing authority.
• The International Chamber of Commerce (ICC) Rules adopt a different approach. In this case, the appointing authority is always the ICC International Court of Arbitration.
• Unlike the UNCITRAL and ICC Rules, under the LCIA Rules, LCIA alone has the power to appoint arbitrators, which results in the rapid constitution of an arbitral tribunal.
• The Singapore International Arbitration Centre (SIAC) Rules provide for consultation before the arbitral institution appoints arbitrators.

Both the UNCITRAL Rules and ICC Rules emphasise party approval before finalising the appointment of an arbitrator or panel of arbitrators. A common feature of all the above rules is their commitment to the timely appointment of arbitrators with the maximum possible involvement of the disputing parties in the process.

Analysing the nature of the Supreme Court’s directions

The order passed by the Supreme Court in Shree Vishnu Constructions is laudable and vital. However, it is important to understand the nature of these directions. The first part of the order deals with applications under Sections 11 (5) and 11 (6) that have been pending for more than a year. The Supreme Court mandates that such applications must be disposed of in six months and directs the Registrar General of the respective High Court to submit a compliance report. The second part directs all High Courts to decide fresh applications preferably within six months.

Unlike the first part of the order, which is mandatory, the second part seems to be directory in nature. Here, the Court could have gone one step further and held that, until the Act is amended, this time limit should be considered as binding, as it has done in some cases involving the interpretation of statutory provisions, such as Afcons Infrastructure v Cherian Varkey.

For arbitration proceedings where parties fail to designate an arbitral institution, the Supreme Court could have directed the High Courts to designate existing arbitral institutions for the appointment of arbitrators. This would have reduced the burden on the High Courts and made the entire process quicker, especially until the 2019 Amendment to the Act—which envisages such an arrangement—is brought into force.

Reinvigorating the appointment process: Ways forward

A key step towards strengthening the process of appointing arbitrators is to amend the Act in light of the Supreme Court’s direction in Shree Vishnu Constructions and prescribe a time limit for the Courts’ appointment of arbitrators. Second, the government should notify the 2019 Amendment at the earliest by establishing arbitral institutions, and providing a procedure for the appointment of arbitrators by such institutions. Further, it could adopt international best practices which allow for quick and timely appointment of arbitrators while also involving the disputing parties in the process of constituting an arbitral tribunal. In the meantime, the respective High Court could, in its first hearing, designate an existing arbitral institution to appoint arbitrators as per institutional rules. These measures will not only help address the issue of pendency of arbitration applications, but also streamline the entire process in the long term.

About the Author

Sharada R Shindhe is an Assistant Professor at NLSIU, where she teaches alternative dispute resolution, family law and insurance law.