APPOINTING ARBITRATOR OR REFERENCE TO ARBITRATION: IS IT WITHIN THE AMBIT OF SECTION 9?

The authors are Priyanshi Bhageria and Dalima Pushkarna, Fourth and Third year students respectively at RMLNLU Lucknow.

Arbitration, which is widely regarded as a preferred approach for resolving disputes, has garnered long-standing public trust. In this context, it is important to highlight the recent practice of various courts of appointing arbitrators with the consent of parties under Section 9 of the Act. Section 9 of the Act confers powers to the court to grant interim measures to the parties. It is important to highlight whether the scope of Section 9 is wide enough to enable the court to refer the dispute to arbitration/ appoint arbitrators. Such orders have been rampant and unbridled. No such power has been given explicitly to the courts to appoint arbitrators or refer the dispute to arbitration under Section 9 of the Act, even when the parties have consented to it.

The purpose of the article is to analyse the scope of Section 9 in this respect in light of the statutory scheme and case laws. The article attempts to establish that the power to appoint arbitrators or refer the matter to arbitration does not come within the ambit of Section 9 of the Act and is only restricted to granting ‘interim’ measures which do not bear a final nature and are only in force for a specific time period. Although the orders do not mention why the courts have resorted to such power, it can be however rationalised that the reason behind such an exercise of power is convenience. The courts may have resorted to such power to avoid multiple applications in the same dispute, thereby making it a practice

Firstly, the article analyses the magnitude of such a practice with the user data collected. The article considers possible justifications for such an exercise of power like the existence of party autonomy and attempts to refute the same. The article also refutes the exercise of such a power in the context of the statutory scheme which explicitly provides for Section 8 and Section 11 of the Act. Although very few, in some cases, courts have refuted such an exercise of power because there is no such power given under Section 9 of the Act. Lastly, the article establishes the need to curb such an unwarranted exercise of powers as it not only lacks the force of law but also creates an unfair situation because it is difficult to challenge the order appointing an arbitrator.

A Look at the Data: Displaying the Practice on Ground

The recent practice of appointing arbitrators and referring the matter to arbitration under Section 9 of the Act is not rare. After analysing the data of 2022 which is publicly accessible on the website of the Hon’ble Delhi High Court, one can conclude that the appointment of arbitrators and reference to arbitration under Section 9 of the Act is quite rampant. Out of 404 applications under Section 9 of the Act in 2022, the Hon’ble Delhi High Court has either appointed the arbitrator or referred the matter to arbitration in almost 50 such applications, with the consent of the parties. (The data can be accessed here.)

Such an exercise of power is witnessed across various jurisdictions. The Hon’ble Calcutta High Court has also appointed arbitrators with the consent of parties, under Section 9 of the Act. A few cases are Srei Equipment Finance Ltd. v. Varaha Infra Ltd. & Ors., Solar Paints Pvt. Ltd. v. Space Rice Projects Pvt. Ltd., Paras Home Product Corporation And Ors. v. Tata Capital Financial Services Ltd. In all these cases, the court has followed a similar approach. The parties consented to the appointment of the arbitrator and the Court based on this consent appointed an arbitrator. Parties were granted liberty to agitate their prayers regarding interim measures before the newly constituted tribunal under Section 17.

The primary concern regarding such an exercise of power is that it is not statutorily mandated and is marred with questions like whether the court can exercise such powers merely because the parties have consented to it.

Does the ‘Party Autonomy’ Argument Justify Such an Exercise of Power?

The first argument that strikes us to defend such an exercise of power is that parties can appoint arbitrators based on mutual consent. However, it must be noted that such an order cannot be defended by using ‘party autonomy’. Party autonomy is usually exercised in relation to the procedure of the arbitral tribunals and not the courts. Section 19 of the Act manifests the principle of party autonomy in India. It states that the parties are free to agree on the ‘procedure to be followed by the arbitral tribunal’ in conducting its proceedings. The Act makes it fairly clear that party autonomy is with regard to the procedure of the Tribunal and is not read in the context of the court’s power. The Act nowhere mentions that the principle of party autonomy can be used to supersede a law.

Moreover, although party autonomy is one of the fundamental principles governing arbitration, the same has its limits. In Bharat Heavy Electricals v. CN Garg, the Supreme Court held that the parties cannot decide on something which is against public policy. It interpreted a country’s ‘legal norms’ under the ambit of public policy itself. Therefore, parties consenting to appoint an arbitrator under Section 9 of the Act is prima facie against the ‘legal norms’ of the country.

Hence, by no stretch of the imagination can the principle of party autonomy be used to flout the principles as enshrined in the Act and give courts the powers they do not have. Such an order, even with the consent of the parties is not legally tenable as it aggrandises the jurisdiction of the courts concerning a certain provision which does not warrant such intervention.

Exercise of Such Power: Inconsistent with the Scheme of the Act

This practice of appointing arbitrators or referring the matter to arbitration under Section 9 of the Act is not statutorily mandated. Section 9 of the Act provides for the grant of ‘interim reliefs’ to the parties before the tribunal is constituted, after the constitution of the arbitral tribunal or after the passing of the award by the tribunal but before its enforcement only if the remedy under Section 17 of the Act is inefficacious. The remedy under Section 17 can be inefficacious whenever the Tribunal is unavailable on account of various reasons like illness, travel, etc. Moreover, Section 9(1)(ii) of the Act provides a list of ‘interim measures’ which can be granted by the Court under Section 9 of the Act. A simple reading of the bare provision would make it clear that the same does not provide for the appointment of arbitrators. It provides for the grant of interim measures namely, “(a) the preservation, interim custody or sale of any goods which are the subject matter of the arbitration agreement;

(b) securing the amount in dispute in the arbitration;

(c) the detention, preservation or inspection of any property or thing which is the subject matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;

(d) interim injunction or the appointment of a receiver;

(e) such other interim measure of protection as may appear to the Court to be just and convenient…”

Although the Court can grant ‘any other interim measure’ that it deems fit, the same is limited to ‘interim measures’ only. The appointment of an arbitrator or reference of a matter to arbitration is not an ‘interim measure’. An ‘interim’ measure is applicable till a certain period of time, for example, till the next date of hearing, during the pendency of the matter, etc. Appointment of arbitrator/reference to arbitration is not such a measure. It is not interim, that is to say, it is not for a specific time period. Generally, the relief claimed under Section 9 is to stay on invocation of bank guarantees, restrain from selling/transferring/creating any third party interest in the subject matter, the appointment of a receiver for protection of the subject matter, etc. Hence, a relief of appointment of arbitrator or reference to arbitration is not in line with the provisions of the Act.

Section 8 and Section 11 of the Act specifically deal with matters related to reference and appointment of arbitration respectively. When the statute has already provided specific provisions that provide for court intervention in arbitration-related matters, the abovementioned practice of appointing an arbitrator and reference to arbitration under Section 9 goes against the scheme of the Act.

Recently, the Hon’ble Bombay High Court has registered disapproval against this practice. In Purushottam s/o Tulsiram Badwaik and Ors. v. Anil s/o Hariram Malewar and Ors., the Court has ruled that a court cannot appoint an arbitrator when the only proceeding before it is an application for the grant of interim measures under Section 9 of the Act, solely on the ground that the opposite party has not objected to the appointment of an arbitrator. The Court added that merely because there is no objection to the opposite party, a Court will not acquire the jurisdiction to appoint an arbitrator. The Hon’ble Court further held that such an exercise of power ‘cannot be traced to any provision of the Act’. Even if there were an arbitration clause giving effect to such an exercise of power, the same must be in accordance with the Act.

Conclusion

It is settled that the appointment of arbitrators cannot be appealed. The only remedy that a party is left with, is a writ petition. Since a challenge to arbitrators is only possible in case of issues concerning impartiality/independence and ineligibility, a challenge to appointment under Section 9 will not fall within the said categories. Even if we consider an appointment of arbitrator/reference to arbitration under Section 9 of the Act as a consent decree, Order XXIII, Rule 3A bars the institution of suits to challenge the consent decree if they are in conflict with the law. This leaves the parties with little recourse and makes such a decision of the courts difficult to challenge.

Hence, such an exercise of power must be disregarded. Even if such an exercise appears convenient, it lacks the force of law. The courts, especially in matters related to arbitration, must be cautious while exercising their powers so as to not expand their jurisdiction more than what is already prescribed in the statute because assuming the jurisdiction that the courts do not have will lead to far-reaching implications such as inconsistency in the law, increased litigation and costs, etc. Some of these are the exact reasons why parties opt for arbitration. Therefore, such a practice, however convenient, is a transgression of power and a regressive step.