The Validity of Appointment Procedures in Arbitration Agreements

Introduction

Under the Arbitration & Conciliation Act, 1996, parties have significant autonomy in determining the procedure for appointing arbitrators. However, disputes regarding the validity of arbitration agreements have emerged, challenging the commencement of arbitration proceedings. In this article, we explore recent judgments from the Hon'ble High Courts of Delhi and Bombay, shedding light on the impact of appointment procedure illegality on the entire arbitration process.

Bombay High Court's Ruling

Analyzing the case of Sunil Kumar Jindal v. Union of India, the Hon'ble Bombay High Court considered the effect of certain clauses in the agreement. Despite specific appointment criteria, the court referred to earlier Supreme Court judgments and emphasized that if the intention of the parties to arbitrate is evident, the appointment procedure's illegality does not invalidate the entire clause. The court held that essential elements of a binding arbitration agreement were satisfied, enabling the arbitration proceedings to proceed.

Delhi High Court's Perspective

In the matter of S K Engineering and Construction Company India v. Bharat Heavy Electrical Ltd., the Hon'ble Delhi High Court addressed a conditional arbitration clause. The respondent argued that the occurrence of a specified contingency terminated the consent to arbitrate. However, the court rejected this argument, relying on the Supreme Court's precedent in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd. The court emphasized that an invalid appointment procedure does not render the entire arbitration clause void but should be excised.

Conclusion

Both the Bombay and Delhi High Courts have reinforced the principle of giving effect to arbitration agreements. The courts have emphasized that technical issues with appointment procedures should not invalidate the entire arbitration clause. Instead, they should be treated as separable, allowing arbitration proceedings to continue. This interpretation aligns with the legislative intent of the Arbitration & Conciliation Act, which promotes party autonomy and limits judicial interference.

By upholding the validity of arbitration agreements, these judgments provide clarity and certainty to parties engaging in arbitration. They underscore the significance of respecting the intentions of the parties and ensuring the efficacy of alternate dispute resolution mechanisms.