Pre-Arbitration Dispute Resolution: Examining Judicial Approaches to Section 11(6) of the Arbitration & Conciliation Act, 1996
When a party fails to exhaust pre-arbitration mechanisms and files an application under Section 11(6) of the Act seeking appointment of arbitrators, it may become necessary for the court to decide if the application under Section 11(6) of the Act is premature in view of the non-exhaustion of the prescribed pre-arbitration mechanisms
The Arbitration and Conciliation Act, 1996 (“Act”) provides ample latitude to parties to appoint arbitrators and determine the procedure for such appointments. However, when the agreed upon procedure for appointment of arbitrators is frustrated, Section 11(6) of the Act allows a party to approach either the Supreme Court or the appropriate High Court for the appointment of arbitrators.
The prevalence of contemporary dispute resolution clauses requiring parties to exhaust pre-arbitration mechanisms, such as mediation, conciliation or reference to technical experts before initiating formal arbitration, has prompted courts to determine whether such pre-arbitration mechanisms need to be exhausted prior to filing an application under Section 11(6) of the Act.
Nature of pre-arbitration mechanisms
Pre-arbitration mechanisms are aimed at facilitating amicable and expeditious resolution of disputes between the parties to an arbitration agreement, without having to initiate arbitration. Such pre-arbitration mechanisms are incorporated in dispute resolution clauses agreed upon between the parties and may provide for time-bound and non-binding amicable resolution. Notably, some pre-arbitration mechanisms provide for reference to technical experts, whose decision may be binding upon the parties.
When a party fails to exhaust pre-arbitration mechanisms and files an application under Section 11(6) of the Act seeking appointment of arbitrators, it may become necessary for the court to decide if the application under Section 11(6) of the Act is premature in view of the non-exhaustion of the prescribed pre-arbitration mechanisms.
The Hon’ble Rajasthan High Court in its judgment Simpark Infrastructure Pvt. Ltd. v. Jaipur Municipal Corporation, 2012 SCC OnLine Raj 2738 has held that an application under Section 11(6) of the Act seeking appointment of arbitrators would be premature if it is filed prior to exhaustion of contractually mandated conciliation.
On the other hand, the Hon’ble Delhi High Court has adopted a more flexible approach in its judgment in Jhajharia Nirman Ltd. v. South Western Railways, 2024 SCC OnLine Del 7133, where the Hon’ble Delhi High Court held that pre-arbitration mechanisms outlined in an arbitration agreement, which require one of the parties to exhaust such mechanisms, should be interpreted as directory rather than mandatory.
The treatment of pre-arbitration resolution mechanisms as mandatory or discretionary, has significant implications on party autonomy vis-à-vis a party’s right and access to efficient and effective dispute resolution. If exhausting pre-arbitration mechanisms is interpreted as mandatory, failure to comply may render an application under Section 11(6) premature, effectively delaying access to arbitration, which may well be the party’s only route to effective redressal of its grievance. However, such refusal to appoint arbitrators where pre-arbitration steps remain unexhausted may be viewed as the courts reaffirming that contractual terms must be respected, adding weight and value to consensual dispute resolution processes. Conversely, if pre arbitration resolution mechanisms are viewed as directory, the court may proceed with the appointment of an arbitrator, particularly where such mechanisms have become impractical, futile, or frustrated due to non-cooperation, or where urgent adjudication is necessary. However, it could be argued that such action would be contrary to the agreement between the parties.
Therefore, courts have preferred a case-by-case approach to determine if the exhaustion of pre-arbitration mechanisms ought to be mandatory or directory before filing of an application under Section 11(6) of the Act for appointment of arbitrators. In conducting such an analysis, courts have found it prudent to consider (i) the language of the dispute resolution clause; and (ii) the conduct of the other party, to determine if an application under Section 11(6) ought to be allowed.
Language of the dispute resolution clause
The Hon’ble Bombay High Court in its judgment in Rajiv Vyas v. Johnwin, 2010 SCC OnLine Bom 1321 held that where no consequences have been provided under the agreement for non-compliance of the requirement to initiate conciliation before arbitration, the conciliation provided for in the dispute resolution clause would be directory. Similarly, the Hon’ble Delhi High Court in its judgment in Siemens Limited v. Jindal India Thermal Power Ltd., 2018 SCC OnLine Del 7158 has held that a dispute resolution clause mandating parties to enter into negotiations to resolve the dispute between them, within a specified time frame, before initiating arbitration is directory as the dispute resolution clause merely provided for a time limit for completing such negotiations but did not provide any specific procedure for conducting the same.
In contrast, the Hon’ble Rajasthan High Court in Simpark Infrastructure (supra) while examining a dispute resolution clause which provided a detailed procedure for completion of the contractually mandated conciliation, prior to initiating arbitration, along with a time limit for the same, relied on the use of the word “shall” in reference to the conciliation to conclude that the conciliation envisaged in the dispute resolution clause would be mandatory. In doing so, the Hon’ble Rajasthan High Court has adopted a restrictive approach, where the parties are required to exhaust pre-arbitration mechanisms irrespective of their efficacy in the facts and circumstances of the dispute between the parties.
It may be noted that the intention of the parties in agreeing to pre-arbitration mechanisms for dispute resolution is inter alia to ensure efficient, economical and quick resolution to their disputes. However, the dynamic nature of disputes and the prevalent circumstances may make the exhaustion of pre-arbitration mechanisms impractical. Therefore, a mechanical reading of the language of a dispute resolution clause may not be sufficient to ascertain whether in a particular factual matrix the same should be read as mandatory or directory.
Effectiveness of the pre-arbitration mechanism
Another factor that courts have analysed to determine if pre-arbitration mechanisms for dispute resolution ought to be mandatorily exhausted before appointment of an arbitrator(s) by way of an application under Section 11(6) of the Act, is the effectiveness of that pre-arbitration mechanism.
The Hon’ble Supreme Court in its judgment in Demerara Distilleries (P) Ltd. v. Demerara Distillers Ltd. (2015) 13 SCC 610 analysed the effectiveness of the mediation envisaged in a dispute resolution clause as a mechanism to be employed prior to initiation of arbitration. The Hon’ble Supreme Court, basis the pleadings of the parties, observed that it is unlikely that the parties would be able to resolve the dispute by mediation, and consequently noted that the process of mediation may be an ‘empty formality’. In view of the same, the Hon’ble Supreme Court allowed the application under Section 11(6) of the Act despite the non-exhaustion of the pre-arbitration mechanism envisaged under the dispute resolution clause set out in the agreement.
Typically, courts have allowed the appointment of arbitrators in cases where the conduct of the other party leaves the pre-arbitration mechanisms for dispute resolution ineffective e.g., failure of the other party to participate in the pre-arbitration mechanisms. However, courts may also consider other circumstances relating to the dispute.
Notably, the Hon’ble Delhi High Court in Jhajharia Nirman (supra) considered the pre-arbitration mechanism in light of the urgency of the dispute, and held that where parties require urgent adjudication, it would be “wholly untenable” to compel the parties to go through the motions of conciliation before the appointing of an arbitrator.
The focus on case-specific interpretation aligns with the broader trend of courts assuming a facilitative role rather than a formalistic one, ensuring that the underlying purpose of arbitration to provide a fair, speedy, and efficient dispute resolution mechanism does not get defeated by procedural rigidity.
Balancing efficient dispute resolution with party autonomy
Evidently, courts have appointed arbitrators prior to the exhaustion of pre-arbitration dispute resolution mechanisms to facilitate and ensure effective redressal of disputes, instead of maintaining a technical approach. However, in doing so it may be cautioned, that the contractually mandated pre-arbitration dispute resolution mechanisms may be undermined, impacting the parties’ autonomy in laying down the dispute resolution procedure.
Pertinently, the Hon’ble Delhi High Court in its judgment in Ravindra Kumar Verma v. BPTP Ltd., 2014 SCC OnLine Del 6602 and the Hon’ble Bombay High Court in its judgment in Rajiv Vyas v. Johnwin, 2010 SCC OnLine Bom 1321, in an attempt to balance the aforestated predicament, sought to appoint arbitrators under Section 11(6) of the Act, while also directing the parties to submit to the stipulated conciliation proceedings under the dispute resolution mechanism, upon failure of which the arbitration may commence.
Conclusion
Having canvassed the inconsistent approaches taken by various High Courts basis a myriad of considerations, it is also pertinent to mention that the Hon’ble Supreme Court in Demerara Distilleries (supra) had appointed arbitrators under Section 11(6) of the Act prior to the exhaustion of the pre-arbitration mechanisms agreed upon between the parties on account of the conduct of the parties in facts of that case, without making any observations on the relevance of factors such as urgency of the dispute, language of the dispute resolution clause and / or effectiveness of the pre-arbitration mechanism.
As such, an authoritative judicial pronouncement laying down the contours within which an arbitrator may be appointed under Section 11(6) of the Act dehors the exhaustion of any pre-arbitration dispute resolution mechanism specified under the agreement is awaited to streamline the approach which may be adopted in such matters.
Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.