Power Of High Courts To Review Or Recall Section 11 Orders: Supreme Court Clarifies The Scope Of Section 11, Arbitration & Conciliation Act.

INTRODUCTION  

The Hon’ble Supreme Court in Hindustan Construction Company Ltd. v. Bihar Rajya Pul Nirman Nigam Ltd1 has held that the High Courts are barred from reopening or reviewing orders appointing arbitrators under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereunder referred to as “the Act”). The Court clarified that scheme of the Act does not confer power of reviewing the Section 11 orders upon High Courts.  It was reaffirmed by the Karnataka High Court recently that inherent plenary power of High Court does not justify substantial review of order passed under Section 11 of the Act2.  

Background of the case  

The dispute in this case emerged from the construction contract dated 04.03.2014 awarded to Hindustan Construction Company Ltd. (“Appellant”) by Bihar Rajya Pul Nirman Nigam Limited (BRPNNL, “Respondent”) for building a bridge over Sone River in Bihar. Clause 25 of the contract between the parties provided for resolving disputes via arbitration. The clause stated that (i) disputes arising from the contract shall be referred to arbitration and (ii) that Managing Director (MD) of Respondent will be appointing authority of arbitrator and in case appointment is not made, no arbitration will take place. During the contract period, Appellant raised a claim before MD, following the contractual pre-arbitration procedure, however MD failed to act. The Appellant then approached the Patna High Court under Section 11(6) of the Act. The Court thus appointed an arbitrator on 02.08.2019. The Arbitrator conducted proceedings and passed an award on 31.12.2021. The award was duly complied with by the Respondent, and it paid the awarded amount to the Appellant.  

The Appellant once again raised fresh claims and upon failure of pre-arbitration procedure, Appellant approached Hon’ble High Court of Patna who appointed an Arbitrator on 18.08.2021 under Section 11(6) of the Act. The pleadings were completed and the parties jointly sought multiple extensions under Section 29A of the Act. After participating actively in the arbitration proceedings, Respondents filed a review application before High Court against the order dated 18.08.2021 and the High Court subsequently reviewed its order and directed arbitrator not to further proceed with the arbitration. Later the High Court reviewed and dismissed the Appellant’s petition for appointment of arbitration filed earlier under Section 11 of the Act. The Appellant then approached the Apex Court against the High Court’s decision.  

The Appellant argued that the High Court exceeded its jurisdiction in reviewing its own Section 11 order and it had had no such power to review. The Act is a self-contained code and does not confer any review power upon High Court. It was also argued that earlier appointment order had attained finality and was not challenged by the Respondent in time which makes the review petition time barred. Appellant pointed out that both the parties actively participated in the arbitral proceedings and jointly filed Section 29A applications. The Appellant contended that the arbitration clause 25 in challenge was also earlier invoked between the same parties resulting in an award accepted by both parties.  

The Respondent on the other hand did not make specific submission on review of Section 11 order. However, they made contentions on validity of clause 25 of the contract.  

Therefore, one of the key issues framed by the Supreme Court was, “whether the High Court possessed the jurisdiction to review or recall its earlier order passed under Section 11(6) of the A&C Act, and whether the exercise of such power was valid in law”. 

Hon’ble Supreme Court after examination of the statutory provisions, legal authorities and factual matrix of the case concluded that High Courts does not have power to recall or modify their own Section 11 orders. Supreme Court found the High Court’s order contrary to the law and accordingly it was set aside.  

Minimum supervisory role of Courts in Arbitral process 

Hon’ble Supreme Court noted that the Act was enacted with the intention of party autonomy, expedition of arbitral process, finality in arbitral award while keeping minimum judicial intervention. The Court while replying upon Bharat Sanchar Nigam Limited and another v. Nortel Networks India Pvt. Ltd3 held that that the Act clearly reflects the intention to “minimize the supervisory role of Courts in the arbitral process” and to facilitate efficient and fair arbitral process. Court held that Section 5 of the act expressly restricts judicial intervention in arbitration proceedings by allowing intervention in some specific situations only. Court relied on Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899, In re4 and held that while making appointments under Section 11 of the Act, role of the Court is limited to appointments of arbitrators only while determining a prima facie existence of an arbitration agreement. All the questions regarding validity, enforceability or jurisdiction of tribunal falls only in the domain of the Arbitral Tribunal constituted.  

Court held that the Act, being a self-contained code, provides for what is permissible and what is not permissible to do. Court relied on the ruling of Railway Electrification v. ECI SPIC SMO MCML (JV)5 and held that Judicial Courts acting as referral Courts under Section 11 do not possess the power to substantively determine the validity of arbitration agreement, their job is to make appointments by satisfying themselves on the existence of an agreement. Section 11 proceedings are facilitative and not adjudicatory in nature. To determine the validity of arbitration clause, Courts would have to conduct regular like civil proceedings which are not warranted under the Act, that is the jurisdiction of Arbitral Tribunal to decide under Section 16. On the issue of the case, Court then held that the entire scheme of the act discourages any kind of intervention, especially by way of review because it would be against the legislation itself. Scope of Courts under Section 11 is very narrow and post-appointing arbitration must go on without any hindrances. Court held that “there no statutory provision for review or appeal from an order under Section 11”.  

Power of Courts to review is Extremely Constrained 

The Hon’ble Court held that that power of High Courts to Review arbitrators’ appointment orders under Section 11 is extremely constrained and very limited which may be utilized only to correct errors apparent on face of record or to address material facts being overlooked, not revisiting findings of law or reappreciating decided issues. Court also noted that under that Act, review is available only to cure a patent or procedural defect but not to decide upon validity of arbitration agreement. Reference was made to Bharat Heavy Electrical Limited v. Jyothi Turbopower Services Private Limited6 where Madras High Court held that despite of Tribunal not having inherent power to undertake review based on merits, it has the inherent procedural power of recalling order terminating proceedings. The Apex Court had also referred to prior judgments7 to illustrate the narrow avenue for review to illustrate that review powers are confined only to procedural lapses and not for re-examination of matters of law.   

The Court further held that upon Section 11 orders have attained finality, only remedy available was to approach the Supreme Court under Article 136 of the Constitution or raise objections under Section 16 of the Act before the Arbitral Tribunal. In the present case, the participation of Respondent in the proceedings, including the joint applications of Section 29A, have estopped them from reopening the matter via review.  The Court held that High Courts are thus barred from reviewing or reopening its prior orders under Section 11(6) of the Act. When the appointment is made under section 11 of the Act, Court becomes functus officio and it cannot adjudicate again on issues already settled. Section 11 has the legislative intent of triggering arbitration and not to create multiple stages of judicial intervention. The Apex Court thus held that High Courts cannot review or recall their prior orders passed under Section 11(6) of the act for appointment of arbitrators.  

Conclusion 

The Apex Court vide this precedent had plugged in a procedural loophole that can be used by parties to further delay the arbitration proceedings. Court has ruled that appointments made by Courts under Section 11 of the Act are not subject to further review by the Courts. Court held that the Act strongly discourages any mid-way judicial intervention, especially by way of review, as it would run contrary to the Act. The Court has clarified that only remedies available against Section 11 orders are to approach Apex Court under Article 136 of Constitution or raise the issue before Arbitral Tribunal under Section 16 of the Act. The ruling further solidifies the objectives of efficient proceedings and minimum Supervisory roles of the Courts in Arbitration Proceedings.  

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