High Court cannot appoint Tribunal in an International Commercial Arbitration even with the mutual consent of the Parties

Introduction

Although consent and party autonomy lie at the core of arbitration, and the process is recognized for its procedural flexibility, a recent judgment of the Madras High Court in M/s. China Datang Technologies and Engineering Company Limited v. M/s. NLC India Limited highlights that some procedural safeguards are mandatory and cannot be waived, even by mutual consent of the parties.

The central issue in the case was whether the Madras High Court had jurisdiction to appoint the tribunal in an international commercial arbitration, if both the parties consented to such appointment. The Court held that it lacked that such an appointment would be jurisdictionally defective, rendering the ensuing arbitral award coram non judice and void in law.

The Factual Matrix

The dispute originated from a contract between NLC India Limited and M/s. China Datang Technologies and Engineering Company Limited, a Chinese entity. Following delays in execution, the contract was terminated and NLC invoked bank guarantee.

China Datang initially approached the High Court under Section 9 of the A&C Act seeking an interim stay on the guarantee invocation. During these proceedings, both parties demonstrated a manifest intention to arbitrate and consented to the appointment of a Sole Arbitrator by the High Court. Based on this consent, a Single Judge appointed a Sole Arbitrator on October 12, 2020.

The Arbitrator subsequently issued an award on 09.11.2022. While allowing NLC to invoke the Bank Guarantee, the Arbitrator also awarded China Datang Rs. 5.10 Crores for specific claims. Both parties filed petitions under Section 34 of the A&C Act challenging the unfavourable portions of the award.

Contentions of the Parties

Notably, while the parties initially addressed arguments only on merits of the award, and neither party assailed the jurisdiction of the Court appointing the arbitrator since it was by their mutual consent, the Court framed the issue of jurisdiction suo moto, and asked the parties to address the initial question of jurisdiction of the High Court to appoint a tribunal in an International Commercial Arbitration.

China Datang argued that the initial appointment of the arbitrator by the High Court was flawed because the case involved an International Commercial Arbitration, and jurisdiction under Section 11(6) for such cases rests exclusively with the Hon’ble Supreme Court. They emphasized that this exclusive power is non-derogable, meaning that the consent given by the parties could not legally confer jurisdiction where none existed under the A&C Act, rendering the appointment order non-est in the eye of law. They lastly submitted that the question of waiver does not arise under Section 4.

NLC emphasized that the Sole Arbitrator was appointed based on the express consent given by both parties during the Section 9 proceedings. Hence, first, the appointment being by consent should be construed as an arbitration agreement under Section 7, rather than a court appointment under Section 11. Second, having participated in the proceedings without challenging the Arbitrator’s jurisdiction under Section 16 of the Act, China Datang was barred by the principles of waiver and acquiescence from raising this objection now in a Section 34 petition.

Judgment and Reasoning

The Madras High Court concluded that the appointment of the sole arbitrator by the High Court and the resulting award were invalid. It held that first, since China Datang is a body corporate incorporated outside India, the dispute qualifies as an International Commercial Arbitration under Section 2(1)(f) of the Act. Second, referring to Section 11(6) read with Section 11(12)(a), the Court reiterated that in ICA matters, the power to appoint an arbitrator rests exclusively with the Supreme Court. Citing Supreme Court precedents (TATA Sons v. Siva Industries and Amway India Enterprises v. Ravindranath Rao Sindhia), the Court reiterated that this exclusive jurisdiction prevents any other court, including the High Court, from exercising this power. Third, the Court rejected the argument that party consent cured the defect. It reasoned that jurisdiction cannot be conferred by consent or waiver. The power conferred on the Supreme Court under Section 11(6) is explicitly non-derogable.

The Court relied on the Supreme Court ruling in Lion Engineering Consultants v. State of Madhya Pradesh, which overruled earlier contrary positions, confirming that a plea of inherent lack of jurisdiction can be raised even at Section 34 stage, notwithstanding that it was not raised before the Tribunal under Section 16.

The Court noted that the wording of the impugned judgment indicated that the appointment was being made by the Court under Section 11, rather than the Court merely recording an agreement between the parties under Section 7. Since the High Court lacked the inherent jurisdiction to appoint the arbitrator, the appointment order and the entire arbitral award were held to be null and void.

Comments

This judgment shows how crucial it is to adhere to the statutory scheme of arbitration at every stage of proceedings. Even if both sides consent, failing to follow the statutory provisions could later undo years of arbitration, pushing the parties back to where they started. Had the parties entered a separate written agreement appointing the arbitrator by their mutual consent, they would have been safe from such an outcome, and the arbitrator’s decision could have been challenged only on merits. The oversight of not clarifying at the time of appointment that it was being made pursuant to a consensual agreement under Section 7 and not under Section 11 made a critical difference in the outcome of this case.

This judgment also reaffirms that a question of inherent lack of jurisdiction could be brought up for the first time at the stage of Section 34 proceedings, even if the parties had not objected under Section 16 proceedings. Furthermore, an argument of waiver would not be successful where the arbitral tribunal suffers from an inherent lack of jurisdiction.

Notably, last year, in Suresh Shah v. Tata Consultancy Services Ltd, the Hon’ble Delhi High Court had in a different context held that Section 2(1)(f) defining an international commercial arbitration is non-derogable, and its applicability cannot be excluded even by mutual consent of parties. In the said case, the parties had mutually agreed to be governed by the domestic arbitration framework. However, after the award was pronounced, one party had challenged it on the ground that it should have been governed as an international commercial arbitration. Even in the said case, while accepting this challenge, the High Court had reiterated that party autonomy and consent would operate within the bounds of the statutory framework governing arbitration and not in derogation to it.