The present judgment was delivered by a two judge bench consisting of Justice Ajay Rastogi and Justice AM Khanwilkar on March 28, 2019. It deals with section 11(6) and Section 11(6A) of the Arbitration and Conciliation Act, 1996.
In the case of ‘United India Insurance Co. Ltd. v/s Antique Art Exports Pvt. Ltd.’, the respondent ran a factory and purchased two fire policies from the Appellant. After a fire took place in the factory on account of a short circuit, the Respondent submitted its claims to the Appellant, who in-turn appointed surveyors. The Appellant approved the Respondent’s claim to the tune of INR 2,81,44,413/-. However, after almost 11 weeks of receipt of claim, the Respondent claimed fraud, coercion and undue influence. The Respondent claimed that he was forced to sign on the dotted lines accepting the claim. Thus, the Respondent filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Act”). The High Court appointed an arbitrator to adjudicate upon the dispute. The present appeal was filed by the Appellant before the Supreme Court of India.
Section 11 falls under Chapter III of the Arbitration Act which talks about the Appointment of Arbitrators. Section 11(6) of the Act empowers the Chief Justice or any person/institution designated by him to appoint an arbitrator, as requested by the party, when either no arbitrator has been appointed or the appointed arbitrator fails to reach the agreement expected of them.
The Supreme Court of India framed the following issues to be decided in the appeal –
1) Whether or not the accepting the compensation by the Respondent was voluntary or under coercion or undue influence?
2) Whether or not the Respondent was justified in invoking Section 11(6) of the Act?
3) Whether or not the High Court was correct in appointing the arbitrator under Section 11(6) of the Act?
In deciding the appeal the learned judges were of the opinion that a mere plea of fraud, coercion or undue influence is not enough as the party claiming the same has to prima facie establish and satisfy the court of its existence. Only upon satisfaction, can the court exercise the power under section 11(6) of the Act. In the present case, the Respondent failed to establish its case and there was no undue influence or coercion as claimed by the Respondent. Hence the respondent was not justified in invoking Section 11(6) of the Arbitration Act and neither was the High Court correct in appointing the arbitrator.
It was held that powers under Section 11(6) of the Arbitration and Conciliation Act, 1996 can be exercised only when the claiming party establishes its case by placing satisfactory material on record. The Court termed the High Court’s exercise of power as “mechanical” and allowed the appeal.
This case summary is prepared by Lavanya Gupta. For any queries/assistance related to arbitration law, she can be reached on [email protected]