The Pros and Cons of Filing Section 11 under the Arbitration and Conciliation Act, 1996

If the Agreement contains an arbitration clause and such clause provides for the unilateral appointment of a sole arbitrator then under such circumstance, is it necessary to approach the court for appointment of an arbitrator under section 11 of Arbitration and Conciliation Act, 1996? 

Assuming that there is no reply to the Section 21 Notice sent within the statutory period as prescribed under the Arbitration and Conciliation Act, 1996 then it is in the best interest of the parties to file a Section 11 application before the court for appointment of an arbitrator instead of going ahead with a unilaterally appointed arbitrator. 

Under Section 11(5) of the Arbitration and Conciliation Act, 1996 it is stated that if a request for appointment of a sole arbitrator is made by one of the parties to the arbitration and the other party fails to reach an agreement for such an appointment within 30 days of receipt of this request, then the High Court or the Supreme Court as the case may be, will appoint the arbitrator after request from a party. 

Now, it is not mandatory to move a Section 11 application before the Hon’ble High Court for the appointment of a sole arbitrator and an arbitral proceeding can be commenced before the Sole Arbitrator suggested by the party in the Section 21 Notice and proceed accordingly. However, such a step may prove to be detrimental in the later stages because the Hon’ble High Court of Calcutta has laid down the invalidity of arbitral proceedings and the arbitral award whereby there was a Sole Arbitrator appointed unilaterally by a party.

In the case of Cholamandalam Investment & Finance Company Limited v. Amrapali Enterprises & Another (2023 SCC OnLine Cal 605) Justice Shekhar B. Saraf of the Hon’ble High Court of Calcutta held that unilateral appointment of Sole Arbitrator by Financial Institutions and Banks were marred by bias and offered no level playing field to the borrowers in appointment of such arbitrators and consequently the arbitral proceedings were held to be void ab initio and the arbitral award was held to be null and void. In this case the appellants had filed an application under section 36 of the Arbitration and Conciliation Act, 1996 for the execution of the arbitral award granted in their favour. The arbitral award was never challenged under section 34 of the Act, yet the Hon’ble High Court stated that even if the award is not set aside under section 34 of the Act, the courts at the execution stage can step in and set aside a ‘unilateral appointment award’ as null and void and direct the parties to re-agitate their issues before a new arbitral tribunal constituted in accordance with law. In the case SEFL v Sadhan Mandal (2023 SCC Online Cal 831) Justice Shekhar B. Saraf of the Hon’ble High Court of Calcutta also stated that the arbitral award itself stands vitiated if it is passed by a unilaterally appointed Arbitrator. 

The above position of law as envisaged by the HC of Calcutta has also been stated in various judgments of the Supreme Court of India, a lot of which were relied on by the Hon’ble High Court of Calcutta before passing the above judgement. The Supreme Court in the case of Perkins Eastman Architects DPC & Anr. V. HSCC (India) Ltd. [(2019) 17 SCR 275] held in para 15 and para 16 that if a party has an interest in the outcome of a dispute then they cannot appoint a sole arbitrator without concurrence from the opposite party as such an arbitrator will be always be biased and the outcome of the dispute resolution process will not be fair. The Supreme Court in the case of Bharat Broadband Network Limited v. United Telecoms Limited [(2019) 6 SCR 97] held in para 17 that a unilaterally appointed arbitrator is de jure ineligible to perform his functions and his mandate is automatically terminated under section 14(1)(a) of the Act. 

Justice Shekhar B. Saraf of the Hon’ble High Court of Calcutta had held in para 8 in the case of Yashovardhan Sinha and Others. v. Satyatej Vyapaar Pvt. Ltd. [2022(3) CHN (CAL) 305] that there cannot be unilateral appointment of sole arbitrator by the respondent as per the clause in the loan agreement as the same is illegal and defeats the purpose of unbiased and impartial adjudication. The appointment of sole arbitrator can either be with mutual consent of both the parties or by an order of a competent court in order to maintain the principle of transparency, fairness and neutrality.

Thus, in the light of the above precedents laid by the courts it is in the best interest of the parties to file a Section 11 application before the High Court and not proceed with the arbitration without it.