India – Indian Supreme Court Orders Arbitrator Backlog To Be Cleared

The Indian Supreme Court has directed the High Courts to decide within six months applications to appoint arbitrators that have been pending for over a year.  While the judgment will help reduce a large backlog, it highlights the importance of designating an arbitral institution to oversee the case and appoint the arbitrators to avoid the risk of delay in India related commercial contracts.

M/s Shree Vishnu Constructions v The Engineer in Chief, Military Engineering Service & Ors., SLP (C) No. 5306/2022.

Background

Sections 11(5) and 11(6) of the Indian Arbitration and Conciliation Act 1996 provide that the court may appoint an arbitrator where (i) the parties cannot agree on a sole arbitrator; or (ii) where there is a failure in an agreed appointment procedure.  Both provisions are subject to any other agreement specifying how deadlocks will be resolved. For example, the parties can designate an arbitral institution to appoint the tribunal if the parties fail to agree.

In 2016, the appellant asked the High Court of Telangana to appoint an arbitrator under Section 11(6). The High Court did not rule on the application until 2020.

The Judgment

On appeal to the Supreme Court, the judges expressed concern at the High Court’s delay. They noted that such long delays would “defeat the object and purpose” of the Arbitration Act.

The Supreme Court directed that:

• High Courts must decide Section 11(5) or 11(6) applications that had been pending more than a year within six months from the Supreme Court’s order; and
• High Courts should endeavour to decide on other 11(5) and (6) applications as soon as possible, preferably within six months.

Comment

This case highlights the risks of relying on the Indian courts to appoint arbitrators. Wherever possible, parties should agree to arbitrate under the rules of a reputable arbitral institution. As well as overseeing procedure generally, the institution will have rules that regulate tribunal appointments, including in default situations.

If you cannot agree institutional arbitration, make sure you include bespoke provisions in your arbitration clauses to cut through any deadlock and ensure the tribunal is appointed expeditiously.

For further information, please contact:

Andrew Cannon, Partner, Herbert Smith Freehills

andrew.cannon@hsf.com