2012 (11) TMI 41 - SC - Indian Laws

Appointment of arbitrators - Arbitration and Conciliation Act, 1996 - procedure for appointment of arbitrator and the actual appointment of the arbitrator - held that - Given the definition of the word appointment , in our view, section 11 does not say that the Chief Justice could alone exercise the general power of judicially determining whether the pre-conditions for such appointment have been fulfilled. To hold otherwise would, not only be contrary to the express language of the section, but it would also mean that the Chief Justice could by designation clothe any person or institution with the power to discharge judicial functions. the procedure that is being followed by the Calcutta High Court with regard to the consideration of the applications under Section 11 of the 1996 Act is legally impermissible. The piecemeal consideration of the application under Section 11 by the Designate Judge and another Designate Judge or the Chief Justice, as the case may be, is not contemplated by Section 11. The function of the Chief Justice or Designate Judge in consideration of the application under Section 11 is judicial and such application has to be dealt with in its entirety by either Chief Justice himself or the Designate Judge and not by both by making it a two-tier procedure as held in Modi Korea Telecommunications Ltd.. The distinction drawn by the Division Bench of Calcutta High Court in Modi Korea Telecommunications Ltd. between the procedure for appointment of arbitrator and the actual appointment of the arbitrator is not at all well founded. - matter restored to High Court for appropriate consideration. Orders passed by the Chief Justice or the Designate Judge under Section 11 of the 1996 Act which have attained finality and the awards pursuant to such orders shall remain unaffected insofar as the above aspect is concerned.

Summary

Issues Involved:
1. Procedure followed by Calcutta High Court in applications under Section 11 of the Arbitration and Conciliation Act, 1996.
2. Legality of piecemeal consideration of applications under Section 11 by two Designate Judges.
3. Judicial nature of the Chief Justice's or Designate Judge's function under Section 11.

Detailed Analysis:

1. Procedure followed by Calcutta High Court in applications under Section 11 of the Arbitration and Conciliation Act, 1996:
The appeals raised questions regarding the procedure adopted by the Calcutta High Court in handling applications under Section 11 of the Arbitration and Conciliation Act, 1996. Specifically, it was contended that the Designate Judge's practice of referring matters to the Chief Justice for the appointment of an arbitrator, despite recognizing the existence of live disputes, was not sanctioned by Section 11. The Supreme Court emphasized that the entire application under Section 11 must be handled by either the Chief Justice or the Designate Judge, not by both in a two-tier process.

2. Legality of piecemeal consideration of applications under Section 11 by two Designate Judges:
The case of Hindustan Copper Limited illustrated the issue where one Designate Judge determined the propriety of the request for an arbitrator and referred the matter to another Designate Judge for the actual appointment. The Supreme Court found this practice legally impermissible, asserting that Section 11 does not envisage a bifurcated procedure where one judge handles the preliminary aspects and another makes the appointment. This piecemeal approach was deemed inconsistent with the judicial nature of the function under Section 11.

3. Judicial nature of the Chief Justice's or Designate Judge's function under Section 11:
The Supreme Court, referencing the seven-Judge Bench decision in SBP & Co. v. Patel Engineering Ltd., clarified that the function under Section 11 is judicial, not administrative. The Chief Justice or the Designate Judge must handle the application in its entirety, including determining the existence of an arbitration agreement, the validity of claims, and the qualifications of the arbitrator. The Court overruled the Division Bench decision in Modi Korea Telecommunication Ltd., which had differentiated between the procedure for appointment and the actual appointment of the arbitrator, stating that such a distinction is unfounded.

Conclusion:
The Supreme Court set aside the impugned orders and restored the arbitration petitions to the High Court for appropriate consideration in line with the judicial nature of Section 11. The Court clarified that orders and awards already finalized under the previous procedure would remain unaffected. The appeals were allowed to the extent of correcting the procedural approach, ensuring that the entire application under Section 11 is handled by a single judicial authority, either the Chief Justice or the Designate Judge, without bifurcation.