Source: Delhi High Court 

Why in News?

The Delhi High Court, led by Justice Subramonium Prasad states the critical principle of judicial non-interference in both domestic and international arbitration. The petition filed under Section 11(5) of the Arbitration and Conciliation Act, 1996 (A & C Act) seeking the appointment of a sole arbitrator. 

What was the Background of Rajesh Kumar Gupta v. Rajender and Others. Case? 

• On 24^th November 2005, Rajesh Kumar Gupta (the petitioner) and Rajender & others (the respondents) executed an Agreement to Sell and Purchase. 
• This agreement pertained to an industrial plot measuring 300 Square Yards, situated within the extended Lal Dora Abadi of village Khera Kalan, Delhi. 
• The agreement was accompanied by additional documents, including a General Power of Attorney, Separate Deed of Wills, Affidavit, Receipt, and Possession Letter, all dated 24^th November 2005. 
• The subject plot was originally allotted to the respondents on 6th May 2005, and was subsequently sold to the petitioner within six months of the allotment. 
• On 10^th December 2007, the original Khasra No. 108/357(0-06) was withdrawn from the respondents, and they were allotted Khasra No. 108/176 (0-06) in its place. 
• On 10^th August 2020, the petitioner discovered that the subject plot was in the possession of an unidentified third party, who claimed it had been allotted to them after withdrawal from the respondents. 
• The petitioner sent a demand cum legal notice to the respondents on 27th August 2020, seeking compensation for the loss suffered. 
• The respondents replied on 11th September 2020, denying the execution of the Agreement to Sell and Purchase dated 24th November 2005. 
• Subsequently, the petitioner filed a petition under Section 11(5) of the Arbitration and Conciliation Act, 1996, seeking the appointment of a Sole Arbitrator to adjudicate the disputes between the parties. 
• The petitioner's claim is primarily for a refund of the consideration amount paid for the plot. 
• The respondents contest the petition on grounds of limitation and non-arbitrability, arguing that the claim is time-barred and involves third-party rights. 

What were the Court’s Observations? 

• The court affirmed that the principle of judicial non-interference in arbitral proceedings is fundamental to both domestic and international commercial arbitration. 
• The court observed that its role at this stage is limited to determining the existence of an arbitration agreement, and not to delve into substantive issues. 
  • The court noted that once an arbitration agreement exists, the option of approaching the civil court becomes unavailable to the parties. 
• The court held that if it were to examine issues beyond the existence of the arbitration agreement, it would amount to usurpation of the arbitral tribunal's power. 
• The court observed that matters such as limitation and third-party rights should be left to be decided by the arbitrator. 
• The court stated that the arbitrator has the power to impose costs on the claimant if the claim is found to be frivolous or barred by limitation. 
• The court emphasized that judicial interference at this stage should be minimal, in line with the principles of arbitral autonomy. 
• The court observed that proceedings before the arbitrator would provide ample opportunity to both parties to present their case on all issues, including limitation and arbitrability. 

What is Principle of Judicial Non-Interference? 

• The principle of judicial non-interference is a central tenet of modern arbitration law, aimed at preserving the autonomy of the arbitral process and minimizing court intervention. 
• In International Arbitration: 
  • Major conventions like the New York Convention and UNCITRAL Model Law enshrine this principle by limiting court intervention to specific instances. 
  • Article 5 of the UNCITRAL Model Law states: "In matters governed by this Law, no court shall intervene except where so provided in this Law." 
  • The principle aims to preserve party autonomy and arbitrator discretion in procedural matters. 
• In Indian Domestic Arbitration: 
  • The Arbitration and Conciliation Act, 1996 incorporates this principle, modeled on the UNCITRAL Model Law. 
  • Section 5 of the Act states: "Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part." 
  • The Act aims to minimize court intervention, limiting it to specific areas like appointing arbitrators, granting interim measures, and setting aside awards on limited grounds. 
• Key legal principles: 
  • Courts should only play an administrative role rather than an adjudicatory one in arbitration. 
  • Judicial intervention should be limited to instances specifically provided for in the law. 
  • Courts should respect the competence of arbitral tribunals to rule on their own jurisdiction. 
  • The grounds for setting aside or refusing enforcement of arbitral awards should be narrowly construed. 

What is Section 11(5) Arbitration and Conciliation Act, 1996? 

• It deals with appointing a sole arbitrator when parties fail to agree. 
• The primary method for appointing an arbitrator is through agreement between the parties. 
• If the parties have not pre-agreed on a procedure for appointing the arbitrator, the process outlined in this section applies. 
• In cases where a sole arbitrator is to be appointed, the parties have 30 days from the date one party receives a request from the other to agree on the arbitrator. 
• If the parties fail to reach an agreement within this 30-day period, either party can make an application for the appointment of an arbitrator. 
• The application for appointment must be made in accordance with the provisions contained in sub-section (4) of Section 11. 
• The court (or designated authority) has the power to make the appointment upon such an application. 
• This provision aims to prevent a deadlock in the arbitration process due to the parties' inability to agree on an arbitrator. 
• The 30-day period serves as a reasonable timeframe for parties to attempt to reach an agreement before seeking court intervention. 
• This section reflects the principle of party autonomy in arbitration, giving parties the primary right to choose their arbitrator, while also providing a fallback mechanism to keep the process moving. 
• The court's role in appointing an arbitrator under this section is administrative rather than judicial in nature, in line with the principle of minimal judicial intervention in arbitration.