JIMS ENGINEERING MANAGEMENT

TECHNICAL CAMPUS School of Law

Assignment
ALTERNATIVE DISPUTE RESOLUTION

Topic:

Analysis of the appointment procedure of arbitrators

SUBMITTED TO
MS. Sunaina Mishra

SUBMITTED BY
KARISHMA
BBALLB (2017-2022)
FIFTH SEMESTER
Enrolment No. 01725503517
ACKNOWLEDGEMENT

I do hereby acknowledge that all the information contained in this project is true to
my knowledge and understanding. Any material written by another person that has
been used in this project has been thoroughly acknowledged.
I thank the esteemed Director of the Institution, Dr. R.K. Raghuwanshi for
inculcating
The concept of preparing a addition to this, I would like to show my heart-felt
gratitude to MS, Sunaina Mishra who undertook the role of a supervisor, mentor
and guide for the successful preparation project report and allowing me to present
my view points in a liberal manner. In of this project report.
INTRODUCTION
Arbitration may be defined as "the process by which a dispute or difference between two or more
parties as to their mutual legal rights and liabilities is referred to and determined judicially and
with binding effect by the application of law by one or more persons (the arbitral tribunal)
instead of by a court of law"

There can be reference to arbitration only if there is an arbitration agreement between the parties.
The Act makes it clear that an arbitrator can be appointed under the Act at the instance of a party
to an arbitration agreement only in respect of disputes with another party to the arbitration
agreement. If there is a dispute between a party to an arbitration agreement, with other parties to
the arbitration agreement as also nonparties to the arbitration agreement, reference to arbitration
or appointment of arbitrator can be only with respect to the parties to the arbitration agreement
and not the non-parties2.

The source of the jurisdiction of the arbitrator is the arbitration clause. The arbitration clause is
normally a part of the main contract governing the parties. An arbitration agreement on the other
hand constitutes a separate agreement, distinct from the main contract, and is binding on the
parties. Parties can, even after the disputes have arisen, agree to have their disputes referred to
arbitration. The agreement, however, must be in writing. Although contracts are required to be
signed by the parties, arbitration clause need not be signed by the parties. An arbitration clause is
binding if the parties have given their express or implied or tacit consent to refer the disputes to
arbitration. Subject to the law of limitation, parties can refer their disputes to arbitration any
time.

There are two forms of arbitration namely, ad hoc and institutional arbitration. Both forms have
separate mechanism for appointment of arbitrators. In ad hoc arbitrations, parties make their own
arrangements for selection of arbitrators and for designation of rules, applicable law, procedures
and administrative support. However, an institution administers the arbitral process as per the
institutional rules on payment of administrative fees by the parties. The institution also allows
the parties to select arbitrator(s) from the institution's panel of arbitrators comprising experts
drawn from various parts of the world.
APPOINTMENT OF ARBITRATOR

The Arbitration and Conciliation (Amendment) Act, 2015 grants the liberty to the parties to
appoint an arbitrator mutually.The Act provides that the parties are free to determine the number
of arbitrators, provided that such number shall not be an even number. However, if the parties
fail to do so, the arbitral tribunal shall consist of a sole arbitrator.1

The procedure in relation to appointment of arbitrator(s) is provided under Section 11 of the Act.
A person of any nationality may be an arbitrator, unless otherwise agreed by the parties. The
aforesaid section also deals with the contingency wherein the parties fail to appoint an arbitrator
mutually. In such a situation, the appointment shall be made, upon request of a party, by the
Supreme Court or any person or institution designated by such Court, in the case of an
International Commercial arbitration or by High Court or any person or institution designated by
such Court, in case of a domestic arbitration.

Before the appointment of arbitrator is made, the concerned Court or the person or institution
designated by such Court is required to seek a disclosure in writing from the prospective
arbitrator in terms of Section 12(1) of the Act and also give due regard to any qualifications
required for the arbitrator by the agreement of the parties and the contents of the disclosure and
other considerations as are likely to secure the appointment of an independent and impartial
arbitrator.

It may be noted that under Section 12(1) of the Act, an obligation has been cast upon the
prospective arbitrator to make an express disclosure on (a) circumstances which are likely to give
rise to justifiable doubts regarding his independence or impartiality; or (b) grounds which may
affect his ability to complete the arbitration within 12 (twelve) months.

The purpose of this provision is to secure the appointment of an unbiased and impartial
arbitrator.

Fifth Schedule to the Act (Annexure-A) contains a list of grounds giving rise to justifiable doubts
as to the independence or impartiality of an arbitrator. The Seventh Schedule (Annexure-B) lays
the grounds which make a person ineligible to be appointed as an arbitrator.

The Act provides that in an International Commercial Arbitration, an arbitrator of a nationality

other than the nationalities of the parties may be appointed where the parties belong to different
nationalities.Expeditious disposal of application for appointment of an arbitrator(s) is
emphasized by the Act and an endeavour shall be made to dispose of the matter within a period
of sixty days from the date of service of notice on the opposite party.
ARBITRATION AGREEMENT

An arbitration agreement is collateral to the substantial stipulation of the contract. It is merely

procedural and ancillary to the contract and it is a mode of settling the disputes, though the
agreement to do so is itself subject to the discretion of the court. It is distinguishable from other
clauses in the contract. It embodies an agreement of both parties with consensus ad idem that if
any dispute arises with regard to the obligations undertaken therein which one party has
undertaken towards the other, such a dispute shall be settled by a tribunal of their own
constitution3. It is the procedural machinery which is activated when disputes arise between
parties regarding their rights and liabilities.

Rule of 'incorporation by reference':

The rule of 'incorporation by reference' asserts that, even though the contract between the parties
does not have a provision for arbitration but is contained in an independent document it will be
imported and engrafted in the contract between the parties, by reference to such independent
document in the contract, if the reference is such as to make the arbitration clause in such
document, a part of the contract. The wording of provisions of the Act5 makes it clear that a mere
reference to a document would not have the effect of making an arbitration clause from that
document, a part of the contract. The reference to the document in the contract should be such
that shows the intention to incorporate the arbitration clause contained in the document, into the
contract. The reference in a contract to a document containing an arbitration clause constitutes an
arbitration agreement if the contract is in writing.

The intention of the Indian Legislature is not to incorporate an arbitration clause contained in a
separate document, merely on reference to such document in the contract. The intention was to
ensure that the reference is such as to make that arbitration clause part of the contract and there is
a conscious acceptance of the arbitration clause in another document, by the parties, as the part
of their contract, before such arbitration clause could be read as a part of the contract between the
parties6.

The Act does not contain any indication or guidelines as to the conditions to be fulfilled before a
reference to a document in a contract can be construed as a reference incorporating an arbitration
clause contained in such document, into the contract. In the absence of such statutory guidelines
the normal rules of construction of contracts would have to be applied. The court in ascertaining
the intention of the parties would determine as to whether the intention of the parties was to
borrow specific terms and conditions contained in the separate document or the reference to that
document was made with the intention to incorporate the contents of that document in its entirety
into the contract.
The test is that there should be a special reference indicating a mutual intention to incorporate the
arbitration clause from another document in the contract. The exception to the requirement of
special reference is where the referred document is not another contract, but a standard form of
terms and conditions of a trade associations or regulatory institutions which publish or circulate
such standard terms and conditions for the benefit of the members or others who want to adopt
the same. The standard forms of terms and conditions of trade associations or regulatory
institutions are drafted by experience gained from trade practices and conventions, frequent areas
of conflicts and differences, and dispute resolutions in the particular trade. They are also well
known in trade circle and parties using such formats are usually well versed with the content
thereof including the arbitration clause therein. Therefore, even a general reference to such
standard terms, without special reference to the arbitration clause therein, is sufficient to
incorporate the arbitration clause into the contract

Ad hoc arbitration:

Ad hoc arbitration is an arbitration which is not administered by an institution providing

arbitration facilities and it is left to the parties to determine all aspects of the arbitration like
appointment of arbitrators, manner in which appointment is made, procedure for conducting the
proceedings and for designation of rules, applicable law, procedures and administrative support.
Ad hoc arbitration is mainly governed by the provisions of Arbitration and conciliation Act 1996
('Act') and parties are free to determine the procedure.

Institutional arbitration:

In institutional arbitration, a specialized institution with a permanent character intervenes and

assumes the functions of aiding and administering the arbitral process, as provided by the rules
of that institution. The institution only facilitates and administers the process and the tribunal is
appointed either by the parties or the institution. Often, the contract between the parties will
contain an arbitration clause which will designate an institution as administrator by stating that
the arbitration would be conducted as per the party designated institutional rules. For
administering and facilitating the arbitration and providing secretarial services and facilities for
conducting the arbitration proceedings, the institution normally levies administrative charges on
the parties. The primary disadvantages of the institutional arbitration are:

(i) Administrative fees are imposed ad valorem and depend on the claim amount. Fees for
services and use of facilities are high in disputes over large amounts;

(ii) Pre-established rules and procedures without any flexibility for conducting the proceedings
may contribute to parties dis-satisfaction;
(iii) Parties to the arbitration may be required to comply with procedural requirements in
unrealistic time frames.

In institutional arbitration, the first issue arising for agreement of the parties is choice of the
institution appropriate for the resolution of disputes arising under the contract. Whilst making
such choice, there are various factors to be considered i.e. nature & commercial value of the
dispute, rules of the institution (as these rules differ), past record and reputation of the institution
and also that the institutional rules are in tune with the latest developments in international
commercial arbitration practice.

The advantages of institutional arbitration outweigh those of ad hoc arbitrations. Some of the
advantages are:

(i) Administrative fees for services and use of facilities are often borne by the losing parties.

(ii) Institutions provide administrative assistance in the form of a secretariat or court of

arbitration;

(iii) Maintains a panel of qualified arbitrators having expertise in different commercial sectors;

(iv) Institution can act as appointing authority of arbitrators on parties consent;

(v) Provides hearing room facilities and support services for arbitrations;

(vi) Extends assistance in encouraging reluctant parties to proceed with arbitration; and

(vii) Offers an established rules and procedure for conducting arbitration proceedings.

Number of arbitrators:
The Act provides that parties are free to determine the number of arbitrators which however,
should not be an even number. Failing any determination by the parties, the arbitral tribunal shall
consist of a sole arbitrator. The statutory requirement of odd numbers of arbitrators is a
derogable provision. The words in the provision "the parties are free to determine the number of
arbitrators" indicate that if they desire to exercise their option in favour of even number of
arbitrators and agree to not to challenge the consequent award, the award rendered would be a
valid and binding. The provision only gives a ground to either of the party in the event of
appointment of even number of parties to object to such composition of the arbitral tribunal. A
party has a right to object to the composition of the arbitral tribunal, if such composition is not in
accordance with the Act. There is, however, no provision for the eventuality in case where the
parties agree to even number. If neither of the parties challenge the composition then any
challenge to the composition must be raised by a party before the time period prescribed under
the Act, failing which it will not be open to that party to challenge the award after it has been
passed by the arbitral tribunal. The Act enables the arbitral tribunal to rule on its own
jurisdiction. A challenge to the jurisdiction of the arbitral tribunal must be raised, not later than
the submission of the statement of defence even though the party may have participated in the
appointment of the arbitrator and/or may have himself appointed the arbitrator. The Act
recognises the right of both parties to choose the number of arbitrators. If the party wishing to
exercise the right fails to exercise such right within the time frame provided then he will be
deemed to have waived his right to so object.

Qualification of arbitrators:

The agreement executed by the parties has to be given great importance. An agreed procedure for
appointing the arbitrators has to be given preference to any other mode for securing appointment
of an arbitrator. If the procedure for appointment as agreed between the parties fails and an
application is filed in court for appointment, the court cannot ignore provisions contained in
Clause (a) of Sub-section (8) of section 11 of the Act wherein it is specifically provided that the
Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall
have due regard to any qualifications required of the arbitrator by the agreement of the parties.

A clause in the agreement providing for settling the dispute by arbitration through arbitrators
having certain qualifications or in certain agreed manner is normally adhered to by the courts and
not departed with unless there are strong grounds for doing so. The appointment of an arbitrator
can be challenged by a party on the ground that he does not possess the qualification agreed to by
the parties. Such challenge has to be brought within 15 days after becoming aware of the
constitution of the arbitral tribunal or after becoming aware of the circumstance that he does not
possess the necessary qualification.

Nationality of the arbitrator:

Parties are free to agree to the nationality of the arbitrator. The word "may" in the Act21 confers a
discretion on the Chief Justice or his nominee. It is not mandatory that the arbitrator should be of
a nationality other than the nationalities of the parties to the agreement.

Changes brought by the Arbitration (Amendment) Act, 2015

The decision in SBP Ltd v/s Patel Engineering Ltd remained good law for ten years before
Section 11(6) was amended by the Act of 2015. The Act of 2015 brought the position back to the
pre-SBP Ltd v/s Patel Engineering Ltd era. The Act of 2015 substituted the words “the Chief
Justice or any person or institution designated by him” appearing in Section 11(6) to “the
Supreme Court or, as the case may be, the High Court or any person or institution designated by
such court”. By doing so, the legislature ended the controversy regarding the nature of the
powers under Section 11(6). It is now clear that under Section 11(6), the powers shall be of a
judicial nature, since it now vests such powers to the “High Court” instead of vesting it to the
“Chief Justice” alone. Secondly, the Act of 2015 has inserted a new Section, namely, Section
11(6A) after sub-section (6) of Section 11. According to the new insertion, the High Court while
exercising jurisdiction under Section 11(6) shall only confine to the examination of the existence
of an arbitration agreement. Consequently, it is now open for the Arbitral Tribunal to decide on
its jurisdiction under Section 16 of the Arbitration Act, as the High Court now does not have the
prerogative of deciding the jurisdiction of the Arbitral Tribunal because of the new amendment.
Finally, the Act of 2015 has also, by way of amendment in Section 11(7), clarified that the order
of the High Court under Section 11(6) shall be final and no appeal including Letters Patent
Appeal shall lie against such decision. However, the option of invoking Article 136 of the
Constitution of India against such an order is still open to the parties. Thus, the Act of 2015 has
somewhat ended the controversy regarding appointment of arbitrator by the High Court under
Section 11(6). It has tried to minimize the interference of the Court in an arbitration proceeding,
which is a step in the right direction.

CONCLUSION

One issue which however remains to be clarified in this regard is the appealability of the decision
of the Court or such arbitral institution, where it decides that the arbitrator should not be appointed.
Section 37 of the Arbitration Act, which lists appealable orders does not mention this order, despite
recommendation to this effect by Law Commission’s 246th Report (which led to the introduction
of the progressive 2015 Amendment to the Act). As against this, where the party resisting
arbitration has initiated court proceedings, and the opposite party requests the court to refer the
matter to arbitration and the court denies reference, the same can be appealed under Section 37
(orders passed under Section 8 are appealable). This results in an anomaly, whereby a party might
be better off waiting for the matter to be referred to arbitration, than in initiating appointment of
arbitration, so far as appealability is concerned, though there appears no reason for such difference.