DR.

RAM MANOHAR LOHIYA NATIONAL

LAW UNIVERSITY LUCKNOW

Final draft
INTERNATIONAL COMMERCIAL ARBITRATION
S.B.P. & Co Vs. Patel Engineering case A
critical analysis

SUBMITTED TO: MR. PRASENJIT KUNDU

(asst. prof. of law)
SUBMITTED BY: AASHISH KAVIYA
8th SEMESTER (ROLL NO. 02) (SEC. A)
TABLE OF CONTENT

Background: Prior to Patel engineering

Discussion regarding Relevant issues of SBP & Co v Patel Engineering Ltd
Reasoning behind reaching conclusion: Ratio
Critical analysis and flaws in reasoning
Final Position
Conclusion
Bibliography

Background- Prior to Patel engineering

Amongst some of the earliest interpretations of the provision of S.11(7) was the case
of Sundaram Finance Ltd v. NEPC India Ltd.1 In this case it was held "Under the 1996 Act
appointment of arbitrator is made as per the provision of Section 11 which does not require the
1 [1999] 1 SCR 89

Court to pass a judicial order appointing arbitrator/s." This decision was reiterated in the case
of Ador Samia Private Ltd v. Peekav Holdings Limited 2, where it was held by the Hon'ble
Supreme Court that "It is now well settled that petition under Article 136 can lie for challenging
a judgment, decree, determination, sentence or order in any cause of matter passed or made by
any court or tribunal in the territory of India. As the learned Chief Justice or his designate under
Section 11(6) of the Act acts in administrative capacity as held by this Court in the aforesaid
decision it is obvious that this order is not passed by any court exercising any judicial function
nor it is a tribunal having trappings of a judicial authority... In view of this settled legal position
therefore, there is no escape from the conclusion that orders passed by the learned Chief Justice
under Section 11(6) of the Act being of an administrative nature cannot be subjected to any
challenge directly under Article 136 of the Constitution of India."3
The decision three judge bench in Konkan Railway Corporation Ltd & Ors v. Mehul
Construction Co.,4 held that the order of the Chief Justice or his designate in exercise of the
power under S.11 of the Act was an administrative order and that such an order was not
amenable to the Jurisdiction of the Supreme Court under Article 136. The effect of this judgment
was that the decision of the Chief Justice being an administrative order was now amenable to the
Writ Jurisdiction under Article 226 of the Constitution and hence, as one may say that the High
Courts were flooded with Writ Petitions challenging the appointment of the Arbitrators.

2 AIR 1999 SC 3246. This was a case pertaining to a Special Leave Petition under Article 136 of
Constitution of India moved by the petitioner challenging an order of the learned Chief Justice of the
High Court of Bombay under Section 11 Sub-section (6) of the Arbitration and Conciliation Act, 1996
3 Appointment Of Arbitrator Under Section 11 (4), (5) & (6) Of The Arbitration Act: A Never-Ending Saga Of
Judicial Interpretation available at
http://www.mondaq.com/india/x/147394/Arbitration+Dispute+Resolution/Appointment+Of+Arbitrator+Under+Sect
ion+11+4+5+6+Of+The+Arbitration+Act+A+NeverEnding+Saga+Of+Judicial+Interpretation accessed on April 6,
2014

4 AIR 2000 SC 2821

Thereafter, in Konkan Railway Corporation Ltd Anr v. Rani Construction Pvt. Ltd. 5 a bench of
five judges The issue before the Court may be summed up in the following words of the referral
order "It appears that the Chief Justice or his nominee, acting under Section 11 of the Arbitration
and Conciliation Act, 1996, have decided contentious issues arising between the parties to an
alleged arbitration agreement and the question that we are called upon to decide is whether such
an order deciding issues is a judicial or an administrative order?"
The Hon'ble Supreme Court after examining the intricacies involved and after careful
examination of the case laws held that "In conclusion, we hold that the order of the Chief Justice
or his designate under Section 11 nominating an arbitrator is not an adjudicatory order and the
Chief Justice or his designate is not a tribunal. Such an order cannot properly be made the subject
of a petition for special leave to appeal under Article 136. The decision of the three Judge Bench
in Konkan Railway Corporation & Ors v. Mehul Construction Co. is affirmed."
SBP & Co v Patel Engineering Ltd
This decision of the Supreme Court in Konkan Railway Corporation Ltd Anr v. Rani
Construction Pvt. Ltd again came for reconsideration before 7 judge bench in the case of S.B.P.
& Co v. Patel Engineering & Anr., 22 thus the question before the Hon'ble Supreme Court was
the nature of the function of the Chief Justice or his designate under S. 11 of the Arbitration and
Conciliation Act, 1996.
The issues which were examined in this case are:
According to a three judge bench of the Supreme Court in Konkan Railway Corporation v.
Mehul Constructions,6 the role of the Chief Justice under section 11 was merely to act as an
appointing authority in case of failure of the appointment procedure agreed upon by the parties.
The Court held that the Act advocated extreme Kompetenz-Kompetenz. Hence, according to the
Court, the decision of the Chief Justice was an administrative decision and all jurisdictional
questions, including questions pertaining to the validity of the arbitration agreement, were to be
5 AIR 2002 SC 778
6 (2000) 7 SCC 201

taken before the arbitral tribunal7. This decision was confirmed by a five judge Bench in Konkan
Railway Corporation v. Rani Constructions8.
In Patel Engineering,9 a seven judge Bench of the Supreme Court had to decide on the nature of
function of the Chief Justice (or his designate) under section 11 of the Act.
The issue was whether the Chief Justice should decide any contentious jurisdictional issue before
referring the parties to arbitration.
Section 11(7) provides that the Chief Justices decision is final. Section 11(6) provides that where
the appointment procedure agreed directly or indirectly by the parties fails; a party could
approach the Chief Justice or his designate to aid in the constitution of the tribunal. It does not
describe the nature of this function of the Chief Justice. The provision is silent on questions such
as whether he is bound to refer a dispute to arbitration irrespective of whether arbitration of such
disputes is not permitted by law.
The Court supported its conclusion with the following reasons: Ratio

The Court said when any tribunal exercises jurisdiction, it has to be satisfied with the
existence of conditions, known as jurisdictional facts, which permit it to do so. According
to the Court, when a statute confers power to the tribunal to adjudicate and makes its
decision final i.e. sub-Section (7) of Section 11 has given a finality to the decisions taken
by the Chief Justice or any person or institution designated by him, such decision is
judicial in character. The tribunal, according to the Court, has to be satisfied of the
existence of the jurisdictional facts. Consequently, the Court held that the Chief Justice
has to necessarily be satisfied of the existence of jurisdictional facts such as the existence

7 This interpretation is supported by the understanding in the UNCITRAL that the decision of a court
under Art. 11 of the Model Law was an administrative decision.
8 (2002) 2 SCC 388
9 (2005) 8 SCC 618

of an arbitration agreement, existence of such agreement between the parties to the

application, etc.

When a statute confers power on the highest judicial authority, the authority has to
necessarily act judicially unless the statute states otherwise.

Conscious deviation from UNCITRAL Model Law: It is common ground that the Act
has adopted the UNCITRAL Model Law on International Commercial Arbitration. But at
the same time, it has made some departures from the model law. Section 11 is in the place
of Article 11 of the Model Law. The Model Law provides for the making of a request
under Article 11 to "the court or other authority specified in Article 6 to take the
necessary measure". The words in Section 11 of the Act, are "the Chief Justice or the
person or institution designated by him". The fact that instead of the court, the powers are
conferred on the Chief Justice, has to be appreciated in the context of the statute. 'Court'
is defined in the Act to be the principal civil court of original jurisdiction of the district
and includes the High Court in exercise of its ordinary original civil jurisdiction. The
principal civil court of original jurisdiction is normally the District Court. The High
Courts in India exercising ordinary original civil jurisdiction are not too many. So in most
of the States the concerned court would be the District Court. Obviously, the Parliament
did not want to confer the power on the District Court, to entertain a request for
appointing an arbitrator or for constituting an arbitral tribunal under Section 11 of the
Act. It has to be noted that under Section 9 of the Act, the District Court or the High
Court exercising original jurisdiction, has the power to make interim orders prior to,
during or even post arbitration. It has also the power to entertain a challenge to the award
that may ultimately be made. The framers of the statute must certainly be taken to have
been conscious of the definition of 'court' in the Act. It is easily possible to contemplate
that they did not want the power under Section 11 to be conferred on the District Court or
the High Court exercising original jurisdiction. The intention apparently was to confer the
power on the highest judicial authority in the State and in the country, on Chief Justices
of High Courts and on the Chief Justice of India. Such a provision is necessarily intended

to add the greatest credibility to the arbitral process. The argument that the power thus
conferred on the Chief Justice could not even be delegated to any other Judge of the High
Court or of the Supreme Court, stands negatived only because of the power given to
designate another. The intention of the legislature appears to be clear that it wanted to
ensure that the power under Section 11(6) of the Act was exercised by the highest judicial
authority in the concerned State or in the country. This is to ensure the utmost authority to

the process of constituting the arbitral tribunal.

When under Section 8 a court decides on the existence of the arbitration agreement, it is
inappropriate that the highest judicial authority cannot decide under section 11 on the

existence of the arbitration agreement.

Impartiality and Credibility is the reason for the statute to grant such a function to the
Chief Justice. There would be no credibility in the decision of the Chief Justice if he
refers the matter to arbitration when the dispute ought not to have been referred to
arbitration for reasons such non-existence or invalidity of arbitration agreement. Such a
decision might have serious monetary consequences on the respondent. This view is
fortified by the fact that in case a mechanical reference is done by the Chief Justice and
the tribunal refuses to accept the respondents genuine contention of non-existence or
invalidity of the arbitration agreement, the respondent has to wait till the final award is
passed and apply for setting the award aside. This approach is advantageous as the
tribunal need not decide on issues pertaining to jurisdiction in view of the courts
confirmation of the existence of jurisdictional facts.

Section 16, titled competence of arbitral tribunal to rule on its jurisdiction, grants the
tribunal the power to rule on questions pertaining to the existence and validity of the
arbitration clause and other questions pertaining to its jurisdiction. Section 16(1) came in
the way of the Courts view on the nature of the Chief Justices decision if the highest
judicial authority decides on a jurisdictional question; the tribunal cannot have the
power to decide contrary to the Chief Justices pronouncement on the same question.
Therefore, the Court held that once the Chief Justice decides that jurisdictional facts
exists and constitutes the tribunal, the decision is binding on the parties and the tribunal.
The only exception, according to the Court, was an appeal from a decision by the Chief

Justice of the High Court constituting the tribunal to the Supreme Court under Art. 136 of
the Constitution of India.
There are many flaws in the Courts reasoning. For instance, a decision by the Chief Justice to
appoint the arbitrator despite the respondents contentions that jurisdictional facts did not exist
was, for the court, a determination on the existence or non-existence of the jurisdictional facts.
The flaw here is the assumption that Chief Justice was the proper authority for the respondent to
raise such arguments in the first place. A corollary to the faulty assumption is branding the
appointment by the Chief Justice as adjudication.
Critical analysis Court legislating
The decision has altered the law on several aspects, leading to partial or absolute redundancy of
some provisions of the Act.
1. After Patel Engineering, a decision of the Chief Justice of the High Court on
appointment of the arbitrator is subject to appeal to the Supreme Court under Art. 136 of
the Constitution of India.10 Such appeal before the additional forum is needless and would
only result in increased costs. The fee for senior and junior counsels for representation
and for conferences, court fee etc. significantly increase the costs. Also, substantial delay
would ensue in the constitution of the tribunal.
2. Indian Oil Corporation v. SPS Engineering11 is a typical example. In this case, the Delhi
High Court, after deciding on jurisdictional questions, passed an order dismissing the
application for appointment of arbitrator on December 8, 2009. The applicant appealed to
the Supreme Court under Art. 136 of the Constitution. The Court appointed the arbitrator
only on February 3, 2011. Thus, it has taken almost fourteen months to constitute the
arbitral tribunal than it would have taken, had the decision of the Chief Justice of the
Delhi High Court been final. This, it is submitted, is not an indication of an efficient
10 Art. 136 deals with appeal by special leave of the Supreme Court on a decision from any judgment,
decree, determination, sentence or order in any cause or matter passed or made by a court or tribunal.
11 (2011) 3 SCC 507.

arbitration system. Even if no appeal is filed under Art. 136, there are chances of delay in
disposing of the application for appointment of the arbitrator. For instance, in Bharat
Rasiklal Ashra v. Gautam Rasiklal Ashra,12 the Supreme Court held that since a question
as to whether there exists an arbitration agreement is a condition precedent for the Chief
Justice to appoint an arbitrator under section 11 of the Act where serious allegations of
fraud and fabrication are made as regards the formation of the agreement, the Chief
Justice had to decide on such allegations, notwithstanding the delay in disposal of the
application for appointment.
3. Institutional Arbitration: In institutional arbitrations, if the parties fail to agree on the
arbitrators, the institution itself constitutes the tribunal on behalf of the parties. In ad hoc
arbitrations, however, there is no alternative if the appointment mechanism agreed by the
parties fails. To avoid this situation, parties might provide, in their arbitration agreement,
that they would approach a particular institution or a person to aid them in the
constitution of the tribunal. Such clauses are, however, rare. In the absence of such a
provision, the Chief Justice has been given the power by the Act to aid the parties, either
by himself or through others, in the constitution of the arbitral tribunal. Many
jurisdictions grant the Chief Justice the power to nominate arbitral institutions to exercise
the function of constituting the arbitral tribunal. For instance, the Singapore International
Arbitration Act expressly gives the power to the Chief Justice to designate arbitral
institutions to act as appointing authorities. By holding that a decision under Section 11
constituting the arbitral tribunal is a quasi-judicial decision, however, The Supreme Court
in Patel Engineering foreclosed the possibility of an arbitral institution performing the
role of constituting the arbitral tribunal in case the party appointed mechanism failed. An
arbitral institution cannot have quasi-judicial powers unless mandated by a statute.
Consequently, the Court held that the role of an arbitral institution designated by the
Chief Justice under section 11 was to merely aid the Chief Justice in selecting the
arbitrator. The Act does not contemplate such a meek role to arbitration institutions. As
regards institutional arbitration, the Act contemplates a role that is equivalent to that of
12 Civil Appeal No. 7334 of 2011, decided on 25-08-2011.

the Chief Justice for appointment of the tribunal. The decision has hindered the growth of
institutional arbitration in India.13
4. Kompetenz-Kompetenz: The Act advocated extreme Kompetenz-Kompetenz. The
Supreme Court, however, considerably watered it down and held that the jurisdictional
questions were to be decided by the court under section 11 and not by the arbitrator.
Final Position
The main issues which were examined in this case are:
1) What is the nature of the function of the Chief Justice or his designate under S. 11 (6) of
the Arbitration and Conciliation Act, 1996?
2) What is the scope and power of the Chief Justice under S. 11?
The Hon'ble Supreme Court examined the aforementioned issues in detail and held that the
power exercised by the Chief Justice or his designate under S. 11 of the Act is a judicial power
and not an administrative power.
i.

The power exercised by the Chief Justice of the High Court or the Chief Justice of India
under S. 11(6) of the Act is not an administrative power. It is a judicial power.

ii.

The power under S. 11(6) of the Act, in its entirety, could be delegated, by the Chief
Justice of the High Court only to another judge of that court and by the Chief Justice of
India to another judge of the Supreme Court.

iii.

In case of designation of a judge of the High Court or of the Supreme Court, the power
that is exercised by the designated, judge would be that of the Chief Justice as conferred
by the statute.

13 Badrinath Srinivasan, Appeal against the order of the chief justice under section 11 of the arbitration and
conciliation act, 1996: an empirical analysis, available at Indian Journal of Arbitration Law
http://ijal.in/sites/default/files/APPEAL%20AGAINST%20THE%20ORDER%20OF%20THE%20CHIEF
%20JUSTICE_0.pdf accessed on April 6, 2014

iv.

The Chief Justice or the designated judge will have the right to decide the preliminary
aspects as indicated in the earlier part of this judgment. These will be, his own
jurisdiction, to entertain the request, the existence of a valid arbitration agreement, the
existence or otherwise of a live claim, the existence of the condition for the exercise of
his power and on the qualifications of the arbitrator or arbitrators. The Chief Justice or
the judge designated would be entitled to seek the opinion of an institution in the matter
of nominating an arbitrator qualified in terms of S. 11(8) of the Act if the need arises but
the order appointing the arbitrator could only be that of the Chief Justice or the judge
designate.

v.

Designation of a district judge as the authority under S. 11(6) of the Act by the Chief
Justice of the High Court is not warranted on the scheme of the Act.

vi.

Once the matter reaches the arbitral tribunal or the sole arbitrator, the High Court would
not interfere with orders passed by the arbitrator or the arbitral tribunal during the course
of the arbitration proceedings and the parties could approach the court only in terms of
Section 37 of the Act or in terms of S. 34 of the Act.

vii.

Since an order passed by the Chief Justice of the High Court or by the designated judge
of that court is a judicial order, an appeal will lie against that order only under
Article 136 of the Constitution of India to the Supreme Court.

viii.

There can be no appeal against an order of the Chief Justice of India or a judge of the
Supreme Court designated by him while entertaining an application under S. 11(6) of the
Act.

ix.

In a case where an arbitral tribunal has been constituted by the parties without having
recourse to S. 11(6) of the Act, the arbitral tribunal will have the jurisdiction to decide all
matters as contemplated by S. 16 of the Act.

x.

Since all were guided by the decision of this Court in Konkan Railway Corporation Ltd.
and Anr. v. Rani Construction Pvt. Ltd and orders under S. 11(6) of the Act have been
made based on the position adopted in that decision, we clarify that appointments of

arbitrators or arbitral tribunals thus far made, are to be treated as valid, all objections
being left to be decided under S. 16 of the Act. As and from this date, the position as
adopted in this judgment will govern even pending applications under Section 11(6) of
the Act.
xi.

Where District Judges had been designated by the Chief Justice of the High Court under
S. 11(6) of the Act, the appointment orders thus far made by them will be treated as valid;
but applications if any pending before them as on this date will stand transferred, to be
dealt with by the Chief Justice of the concerned High Court or a Judge of that court
designated by the Chief Justice.

xii.

The decision in Konkan Railway Corporation Ltd. and Anr. v. Rani Construction Pvt.
Ltd., is overruled.

Conclusion
A reading of the 1996 Act shows that speedy arbitration and least court intervention are its main
objectives. The limitation on the intervention by the courts is clearly enunciated in Section 5 of
the Act.14 This basic provision is found in the laws of all the countries which have adopted the
UNCITRAL Model Law, which amply demonstrate that the objective is to see that the disputes
are not unduly prolonged. The consequence of the Patel Engineering Case is that the judiciary is
frequently adopting the law and reason laid down in it and concomitantly upsetting the process
of arbitration.
Though the Act has adopted the UNCITRAL Model Law on International Commercial
Arbitration, but at the same time, it has made some departures from the Model Law. Section 11 is
in the place of Article 11 of the Model Law.15 The fact that instead of Court the powers are
conferred on the Chief Justice has to be appreciated in the context of the statute. Consequently, it

14 Section 5 declares: Notwithstanding anything contained in any other law for the time being in force, in matters
covered by this Part (Part I), no judicial authority shall intervene except where so provided in this Part.

can be said that the power to appoint arbitrators was laid in the hands of the Chief Justice not in
their judicial capacity.
The question raises the Patel Engineering and Konkan Railway i.e. whether the power of the
Chief Justice is judicial or administrative. It is settled that when an application is filed under
Section 11, the Chief Justice or his Designate is required to decide only two issues, that is
whether the party making the application has approached the appropriate court and whether there
is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is
a party to such agreement. Therefore, the Chief Justice exercising jurisdiction under Section 11
of the Act has to only consider whether there is an arbitration agreement between the petitioner
and the respondent in the application under Section 11 of the Act. Any wider examination in such
a summary proceeding will not be warranted. In effect, the consequence of the Patel Engineering
Case is that the judiciary is frequently adopting the law and reason laid down in it and
concomitantly upsetting the process of arbitration.
Bibliography

E-Sources:
Badrinath Srinivasan, Appeal against the order of the chief justice under section 11 of the
arbitration and conciliation act, 1996: an empirical analysis, available at Indian Journal of
Arbitration Law
http://ijal.in/sites/default/files/APPEAL%20AGAINST%20THE%20ORDER%20OF
%20THE%20CHIEF%20JUSTICE_0.pdf accessed on April 6, 2014
Aloke Ray and Dipen Sabharwal, What Next for Indian Arbitration?, available at
http://www.whitecase.com/files/Publication/What_Next_for_Indian_Arbitration_Article2
.pdf accessed on April 5, 2014
http://www.legalserviceindia.com/lawforum/index.php?topic=2024.0 accessed on April 5,
2014
15 Article 11 of the UNCITRAL Model Law confers the duty to appoint the arbitrators upon the Court
and to restrict judicial intervention, on the other hand Arbitration and conciliation Act confers such duty
on the Chief Justice or his designate.

 http://lexarbitri.blogspot.in/2010/07/recent-developments-on-scope-of-s-11.html accessed
on April 5, 2014
http://perspectivesonlaw.blogspot.in/2010/01/appointment-of-arbitrator-by-cj.html
accessed on April 6, 2014

Online legal data base:

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