Supreme Court Allows Appeals in Arbitration Appointment Dispute — Pre-Amendment Act Applies; No Claim Certificate Does Not Bar Arbitration; Mutually Agreed Procedure Must Be Respected

Civil appeals against orders of the Rajasthan High Court appointing independent arbitrators under Section 11(6) of the Arbitration and Conciliation Act, 1996.

The appellants (Union of India) sought setting aside of the High Court's orders appointing independent arbitrators and sought appointment of arbitrators in accordance with the contract.

The High Court appointed independent arbitrators without adhering to the mutually agreed procedure under the contract and applied the amended provisions of the Act, 2015 to proceedings that commenced before the amendment.

The Rajasthan High Court allowed the applications under Section 11(6) and appointed retired High Court judges as independent arbitrators.

Whether the High Court was justified in invoking the amended provisions of the Arbitration and Conciliation (Amendment) Act, 2015 for appointment of an independent arbitrator. Whether the arbitration agreement stands discharged upon acceptance of payment and signing of no claim certificate. Whether the High Court could appoint an independent arbitrator under Section 11(6) without adhering to the mutually agreed procedure under the contract.

Appellants argued that the request for arbitration was made before the Amendment Act, 2015 came into force, so pre-amended provisions apply; no claim certificate discharges the contract; and the High Court should have respected the agreed procedure for appointment of arbitrator. Respondents argued that no claim certificates were given under financial duress and do not bar arbitration; the agreed procedure was not followed by the appellants; and the High Court correctly appointed an independent arbitrator to ensure neutrality.

The pre-amended provisions of the Arbitration and Conciliation Act, 1996 apply to arbitration requests made before 23rd October 2015; signing a no claim certificate does not automatically discharge the arbitration agreement; and under Section 11(6), the court must first respect the mutually agreed procedure for appointment of arbitrator before appointing an independent arbitrator.

The question that arises for consideration in the batch of appeals by special leave is as to whether (1) the High Court was justified in invoking amended provision which has been introduced by Arbitration and Conciliation(Amendment Act), 2015 with effect from 23 rd October, 2015... Indisputedly, the request for the dispute to be referred to arbitration in the instant batch of appeals was received by the appellants much before the Amendment Act, 2015 came into force (i.e. 23 rd October, 2015). Learned counsel further submits that once the no claim certificate has been signed by each of the respondent and after settlement of the final bills, no arbitral dispute subsists and the contract stands discharged... It was required in the first instance to make every possible attempt to respect the agreement agreed upon by the parties in appointing an arbitrator to settle the disputes/differences...

The respondents filed applications under Section 11(6) of the Arbitration and Conciliation Act, 1996 before the Rajasthan High Court for appointment of an independent arbitrator after the appellants failed to appoint an arbitrator in terms of Clause 64(3) of the GCC. The High Court allowed the applications and appointed retired High Court judges as independent arbitrators. The appellants challenged these orders by way of special leave petitions, which were converted into civil appeals and heard together.

• Arbitration and Conciliation Act, 1996: Section 11(6), Section 12(5), Section 21
• Arbitration and Conciliation (Amendment) Act, 2015: Section 26, Fifth Schedule, Seventh Schedule