The Honorable Supreme Court of India (“Court”) by its order dated February 17, 2011 in the matter of M/s. A.P.S.Kushwaha (SSI Unit) v. Municipal Corporation, Gwalior and others, relying on SBP & Co. v. Patel Engineering Ltd¹ held that once the arbitrator is appointed by the designate of the Chief Justice of the High Court under section 11(6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), the arbitral tribunal could not go behind such decision and rule on its own jurisdiction or on the existence of an arbitration clause.

Whether the arbitrator appointed by the designate of the Chief Justice under section 11(6) of the Arbitration Act lacked the inherent jurisdiction to resolve the dispute?

Court’s rationale

The Respondent submitted before the Court that the disputes pertaining to, or arising out of work contracts granted by the state had to be resolved through statutory arbitration under the 1983 Act and not the Arbitration Act. Consequently, the arbitrator appointed by the designate of the Chief Justice under section 11(6) of the Arbitration Act lacked the inherent jurisdiction to resolve the dispute. Hence, the Court had to choose between the 1983 Act and the Arbitration Act to determine the law of arbitration in the instant cast.

Reference to Tribunal - Either party to a works contract shall irrespective of the fact whether the agreement contains an arbitration clause or not, refer in writing the dispute to the Tribunal.

This provision clearly provides that all disputes pertaining to work contracts will have to be submitted to the statutory tribunal constituted under the 1983 Act. The Arbitration Act was enacted by the parliament subsequent to the 1983 Act in 1996. The Arbitration Act applies to all arbitrations including arbitrations pertaining to government contracts and covers all kinds of disputes including the disputes relating to work contracts.

The Court had dealt with the same issue in the matter of V.A.Tech Escher Wyass Flovel Ltd. v. M.P. S.E.Board² and laid down the following principle,

“The 1983 Act and the 1996 Act can be harmonised by holding that the 1983 Act only applies where there is no arbitration clause but it stands impliedly repealed by the 1996 Act where there is an arbitration clause. We hold accordingly”.

The Court relied on this ruling to opine that the provisions of the Arbitration Act would apply in cases where the contract between the disputing parties includes an arbitration clause and in all other cases the disputes pertaining to work contracts will have to be resolved under the 1983 Act. In the instant case, clause 29 of the contract between the parties was a specific arbitration clause and therefore, the applicable law of arbitration is the Arbitration Act and not the 1983 Act. Since the law of arbitration is the Arbitration Act, an arbitrator appointed under the Arbitration Act has the jurisdiction to hear and resolve the dispute in the instant case.

Court also highlighted the ruling in the matter of SBP & Co. v. Patel Engineering Ltd. to hold that once the Chief Justice or his designate duly appoints an arbitrator in an application under section 11 (6) of the Arbitration Act, after verifying that the conditions for exercise of power to appoint an arbitrator are present, the arbitral tribunal could not go behind such decision and rule on its own jurisdiction or on the existence of an arbitration clause.

Accordingly, Court rejected the claim of the Respondent to hold that the arbitrator had the inherent jurisdiction to hear and resolve the dispute.

While the Court rightly elected the Arbitration Act as the law applicable to the arbitration, the reliance of the Court on the ruling in the matter of SBP & Co. v. Patel Engineering Ltd needs to be closely examined.

Court has opined that “an arbitrator duly appointed by the Chief Justice under section 11(6) of the Arbitration Act after satisfying himself that the conditions for exercise of power to appoint the arbitrator are present, could not go behind such decision and rule on its own jurisdiction or on the existence of an arbitration clause”.

It is assumed that the appointment of an arbitrator by the Chief Justice or his designate under section 11(6) of the Arbitration Act is subject to due verification of the existence of a valid arbitration agreement, appropriate interpretation of such arbitration agreement and other circumstances that warrant the appointment of the arbitrator. However, can such assumption disentitle the arbitrator of its inherent power to confirm and rule on its own jurisdiction?

The doctrine of Kompetenz-kompetenz which is also incorporated under section 16 (1)³ of the Arbitration Act is a fundamental principle of law of arbitration and an inherent power of the arbitrator. Section 16 (1) of the Arbitration Act clearly entitles an arbitrator to rule on its own jurisdiction irrespective of how the appointment has been made. The Arbitration Act does not identify the appointments made under section 11(6) as an exception to operation of section 16 (1) of the Arbitration Act. Therefore, in strict terms of the Act, the ruling in SBP & Co. v. Patel Engineering Ltdmay not be accurate. However, in practicality it may be duplication of process if both Chief Justice of the High Court and the arbitrator verifies the jurisdiction of the arbitrator.

-  Arun Scaria & Vyapak Desai