THE UIIC CASE AND THE SUPREME COURT: STATUS QUO ON SECTION 11 OF THE ARBITRATION AND CONCILIATION ACT, 1996?

The Supreme Court, while deciding the United India Insurance Co. Ltd. v. Hyundai Engineering Co. Ltd.[1](hereinafter referred to as the ‘UIIC’ Case), made a rather surprising interpretation of Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘1996 Act’). The judgment delivered by the Apex Court overturned a previous judgment of the Madras High Court, wherein the Madras High Court had appointed an arbitrator. In its judgment, the Madras High Court had assessed the power of the High Courts, especially in light of the effect caused by the Amendment to the Section 11 of the Act by Act No. 3 of 2016.[2] In that case, the High Court concluded the scope of its powers to be confined to merely confirming the existence of an arbitration agreement.

Section 11 of the 1996 Act has always met with trouble in interpretation by the Courts, especially when the issues concerned the determination of the power of the Chief Justice under the provision. The Bench in the case of Konkan Railways Corporation v. Mehul Constructions[3] opined for the first time in it, which was reiterated in the Konkan Railways Corporation v. Rani Constructions[4] by a Five Judge Bench, terming the power under this section to be an administrative one. However, a Seven-Judge Bench decided against it, and held it to be a Judicial Power, and it was affirmed by the Supreme Court. The S.B.P. & Co. v. Patel Engineering Ltd. & Anr.[5] Held the order to indeed be a judicial one, and it was in the case of National Insurance Co. Ltd. v. M/S. Boghara Polyfab Pvt. Ltd.[6] wherein the topics that needed to be assessed by the Chief Justice were decided, especially the ones that the Chief Justice must, may, or should not consider.

However, the Amending Act had sought to alter this position laid down by the courts. The Courts had laid down three assessments for the Chief Justice to consider – he must assess whether the High Court so approached was appropriate and whether there was an arbitration agreement in existence; he may assess if the claims before the Court are barred due to limitation; but he was not in any situation to consider whether the claims were arbitrable or not.

The Amendment sought to alter this position with the introduction of the sub-section 6A to Section 11 of the Act. With the addition of sub-section 6A, the potential of the scrutiny by the High Court or the Supreme Court was confined to the assessment for the existence of the arbitration agreement, and not more than that. Of the three assessments laid down in the Boghara Polyfab Case, the Amendment rendered useless the second and the third assessments that were to be made by the High Court or the Supreme Court, as the case may be.

The UIIC Case did not present any dispute as to whether the arbitration clause existed or not, but whether the claims that had been made fell into the scope of the arbitration clause. In this case, by examining the arbitration clause, and the dispute so raised, the Supreme Court delved into the issue that the Chief Justice was never supposed to consider under the Section 11, even under the several cases in the judicial history of the section. If this judgment was to be assumed to be right, then the powers of the High Court would stand expanded to what had been held in the Patel Engineering Case. If the High Court indeed is supposed to examine the claims that have been made and the existing disputes, it would greatly magnify the power of the High Court, something that the sub-section 6A vehemently intended to not allow.

This judgment by the Supreme Court will lay the impetus to several more questions that will pose as a problem for the interpretation of Section 11 in the cases to come. The problems that will come up will typically pertain to the other issues that will demand consideration, especially if the UIIC case was to be interpreted strictly. The discharge of the contract will also need to be examined and is one of the other problems that may present themselves, not to mention, that the question of Arbitrability will also demand to be analysed when the Court is disposing of any application under the Section 11 of the 1996 Act.

 

The situation before the UIIC decision was apt – it was proper. This was because the decision of the High Court or the Supreme Court upon the existence of the arbitration agreement – whether it existed or not –  brought along a certainty in the situation, and for the provisions of the 1996 Act, the decision would have been final.[7] It would have been the proper course of conduct for the Supreme Court to merely confine its assessment of the matters that are simply covered under the Section 11(6A) of the 1996 Act, and then leave the rest of the matters in the Tribunal that would be so appointed. The Tribunal may then take its turn to assess the issue of Arbitrability. The Amendment to the 1996 Act ensured that the balance between the two powers – to appoint an arbitrator, and to assess the questions of jurisdiction under Section 16 of the 1996 Act. The procedures mentioned here would also limit the intervention of the Courts, in accordance with the provisions of the 1996 Act.[8] This will also enable to eradicate any conflict when the arbitrator is being appointed, or if the validity of the jurisdiction under Section 16 of the Act is being assessed.

The judgment of the Supreme Court in the UIIC Case will open up several other conundrums in the law, which need to be addressed immediately. The UIIC judgment will reopen the controversies prevalent in regards the interpretation of Section 11 of the 1996 Act, undeniably, from several other new perspectives. Reinstating the position before the Amendment to the 1996 Act will pose several other loopholes for the Courts, to which, as of now, no answer remains.

 

 

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[1] Civil Appeal No. 8146 of 2018. Available at – https://indiankanoon.org/doc/164803491/

[2] The Arbitration and Conciliation (Amendment) Act, 2015, No. 3 of 2016. Available at – http://164.100.235.75/upload/asset/1453103622_Arbitration%20and%20Conciliation%20Act,%202015.pdf.

[3] Konkan Railway Corp. Ltd. & Ors. vs. M/S. Mehul Construction Co., 2000 (7) SCC 201. Available at – https://indiankanoon.org/doc/1752565/.

[4] Konkan Railway Corp. Ltd. vs. Rani Construction Pvt. Ltd., Appeal (Civil) 5880-5889 of 1997. Available at – https://indiankanoon.org/doc/1999671/.

[5] S.B.P. & Co. v. Patel Engineering Co. & Anr., Appeal (Civil) 4168 of 2003. Available at – https://indiankanoon.org/doc/1641452/.

[6] National Insurance Co. Ltd. v. M/S. Boghara Polyfab Pvt. Ltd., Civil Appeal No. 5733 of 2008, Available at – https://indiankanoon.org/doc/1243245/.

[7] Section 11(7), 1996 Act.

[8] Section 5, 1996 Act.

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