CASE COMMENT: UTTARAKHAND PURV SAINIK

KALYAN NIGAM LTD. VS. NORTHERN COAL FIELD LTD.

Appeal No.: Special Leave Petition (C) No. 11476 of 2018

Judgment Date: 27-Nov-19

Court/Bench: Supreme Court of India

Coram: Ms. Justice Indu Malhotra and Mr. Justice Ajay Rastogi

Introduction:

The Petitioner-Uttarakhand Purv Sainik Kalyan Nigam and the Respondent-Northern

Coal Field Ltd entered into an agreement, whereby the Petitioner was to provide security
services to the Respondent as per the agreed contractual terms. However, disputes arose
between the parties with respect to payment of amounts due under the contract, and the
deduction of the security amount from the running bills. The Petitioner issued a Notice of
Arbitration in accordance with the arbitration clause, calling upon the Respondent to
nominate a Sole Arbitrator to adjudicate the disputes. The Respondent failed to respond, and
the Petitioner thus filed an Application with the High Court under Section 11 of the
Arbitration and Conciliation Act, 1996, invoking the court's power to appoint a sole
arbitrator. The High Court, however, held that the claims of the Petitioner were barred by
limitation and thus no arbitrator could be appointed.

Facts:

A dispute arose between the Uttarakhand Purv Sainik Kalyan Nigam Ltd & Northern
Coal Field Ltd with respect to payment of amounts under the contract and the deduction of a
security amount from the running bills. On 29.05.2013, the Petitioner issued a Legal Notice
demanding

1
MANU/SC/1634/2019

Page: 1
payment of the amount of Rs. 1,43,69,309/- along with interest. On 09.03.2016, the Petitioner
sent a Notice of Arbitration calling upon the Respondent to nominate a Sole Arbitrator in
terms of the arbitration clause. Further on 30.05.2016, the Petitioner sent another Notice to
the Respondent proposing the name of a retired Additional District Judge, Mr. Jai Singh, as
the Sole Arbitrator. As the Respondent failed to respond above Notice, the Petitioner filed an
Application on 20.09.2016 Under Section 11 of the 1996 Act, invoking the default power of
the High Court to make the appointment of a Sole Arbitrator. The High Court, however, held
that the claims of the Petitioner were barred by limitation and therefore an Arbitrator could
not be appointed.

Issues:

1. The issue in this case was whether the High Court was correct in rejecting the
application filed under Section 11 of the Arbitration Act for referring a dispute to
arbitration. The High Court held that the application was barred by limitation,
meaning that it was filed after the legal deadline for filing such an application had
passed.
2. The question before the High Court was whether it was justified in denying the
application under Section 11 of the Arbitration and Conciliation Act for reference to
arbitration, on the basis that it was time-barred. This dispute was concerning the
Respondent agreement and the deduction of the security amount from the running
bills.

Law/Rules Involved:

1. Section 11 (6) of the Arbitration and Conciliation Act, 19962 states that:

"Where the parties have agreed that the arbitral tribunal shall consist of a sole arbitrator, the
parties are free to determine the procedure to be followed by the arbitrator in conducting the
proceedings."

In other words, if the parties have agreed that the dispute should be resolved by a sole
arbitrator, they are free to decide the procedure that the arbitrator should follow in order to
resolve the dispute. This includes the rules of evidence, the manner of taking evidence, the
procedure for submitting arguments and the manner of delivering the award.
2
Arbitration and Conciliation Act, 1996, § 11 (6), Indian Kanoon, https://indiankanoon.org/doc/605764
 2. The "Kompetenz-Kompetenz" Principle, as laid out in Section 16 of the Arbitration
and Conciliation Act, 1996: states that the arbitral tribunal has the power to decide on
its own jurisdiction. This means that the tribunal has the authority to determine
whether it has the power to hear the dispute and to decide on the merits of the case.
This principle is important to ensure that the tribunal is not prevented from deciding
on the merits of the dispute by a party's procedural objections.

3. The New York Convention is an international treaty that requires courts in signatory
countries to recognize and enforce foreign arbitration awards. Article V(1)(a)3:
The Convention sets out one of the grounds for refusal of recognition and
enforcement of an award: that the arbitration agreement is not valid under the law
chosen by the parties or, if the parties have not chosen a law, the law of the country
where the award was made.

This means that if the parties have chosen a particular law to govern their arbitration
agreement, recognition and enforcement of the award may be refused if the arbitration
agreement is not valid under that law. Similarly, if the parties have not chosen a particular
law, the award may be refused if it is not valid under the law of the country where the award
was made.

In either case, the court refusing recognition and enforcement of the award will consider
whether the arbitration agreement is valid according to the applicable law. This includes
assessing whether the agreement was formed validly, whether it is enforceable, and whether it
is compatible with public policy in the relevant jurisdiction.

Analysis:

The Supreme Court set aside the High Court's judgment and order passed on 11th January
2018 and directed that the issue of limitation be decided by the arbitral tribunal. The Court,
while allowing the appeal, held that the issue of limitation was a jurisdictional issue which
had to be determined by the arbitral tribunal under Section 16 of the 1996 Act. The Court
further set aside the High Court's impugned order, and appointed a former Judge of the Court
as the Sole Arbitrator subject to the declarations being made under Section 12 of the 1996
Act (as amended) with respect to the independence and impartiality of the arbitrator, and the
ability to
3
UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature June
10, 1958, 330 U.N.T.S. 3, Art. V(1)(a) (1958)
devote sufficient time to complete the arbitration within the period specified by Section 29A
of the 1996 Act.

The issue of limitation is a mixed question of fact and law. In ITW Signode India Ltd. v.
Collector of Central Excise4 The Supreme Court held that the question of limitation involves
a question of jurisdiction. The findings on this issue of limitation would be a jurisdictional
issue, which should be determined based on the facts and applicable law. In the present case,
the Respondent Company raised the issue of limitation before the High Court in an attempt to
oppose the appointment of an arbitrator Under Section 11.

The Court has previously held in NTPC v. Siemens Atkein Gesell Schaft 5 that the arbitral
tribunal should address any limitations on a claim Under Section 16 of the 1996 Act. If the
tribunal determines that the claim is time-barred, then it must adjudicate the matter on its
merits. According to Sub-section (5) of Section 16, the tribunal must issue a decision on this
matter; and if the plea is rejected, the arbitral proceedings may continue and the tribunal may
issue an award. Sub-section (6) of Section 16 allows an aggrieved party to challenge an
arbitral award via Section 34.

Further in the case of M/s. Indian Farmers Fertilizers Cooperative Ltd. v. Bhadra Products 6,
the Supreme Court of India held that the issue of limitation is a jurisdictional matter which
must be decided by the tribunal in accordance with Section 16, which is based on Article 16
of the UNCITRAL Model Law, which enshrines the Kompetenz principle.

The Law Commission in the 246th Report has proposed amendments to Sections 8 and 11 of
the Arbitration and Conciliation Act, 1996. The scope of judicial intervention is limited to
instances where the Court/Judicial Authority finds the arbitration agreement invalid or
nonexistent. If the Court/Judicial Authority is prima facie satisfied that the argument
challenging the arbitration agreement is invalid, it shall appoint the arbitrator and/or refer the
parties to arbitration, as appropriate. The amendment stipulates that the judicial authority
shall not refer the parties to arbitration if it finds that the arbitration agreement does not exist
or is null and void. If the judicial authority is of the opinion that the arbitration agreement is
valid,

4
MANU/SC/0938/2003 : (2004) 3 SCC 48
5
MANU/SC/1113/2007: (2007) 4 SCC 451
6
(2018) 2 SCC 534
then it shall refer the dispute to arbitration, letting the arbitral tribunal make the final
determination of the arbitration agreement's validity.

Prior to the enactment of the 2015 Amendment Act, a seven-judge Constitution Bench of The
Court in SBP & Co. v. Patel Engineering Ltd 7, had determined the scope of the power of the
Chief Justice or his designate to appoint an arbitrator Under Section 11.

The Court held that the Chief Justice must first decide:

(i) whether there is a valid arbitration agreement;

(ii) whether the person who has made the request Under Section 11 is a party to the
arbitration agreement; and

(iii) whether the party making the motion had approached the appropriate High Court.

Additionally, the Chief Justice was tasked with resolving all threshold issues with respect to
jurisdiction, the existence of the agreement, whether the claim was a dead one, a time-barred
claim, or a transaction that had been concluded by recording satisfaction of the parties’ mutual
rights and obligations and receiving the final payment without objection. This interpretation of
the power of the Chief Justice Under Section 11 was subsequently followed in Boghara
Polyfab, Master Construction, and other decisions.

In its 246th Report, the Law Commission recommended amendments to Sections 8 and 11 of
the Arbitration and Conciliation Act, 1996, limiting the scope of judicial intervention to cases
where the Court/Judicial Authority finds that the arbitration agreement either does not exist or
is null and void. Should the Court/Judicial Authority be prima facie satisfied that the
arbitration agreement is valid, then it shall appoint the arbitrator and/or refer the parties to
arbitration, leaving the existence of the arbitration agreement to be determined by the arbitral
tribunal.

The issue of restriction should be resolved by an arbitrator, in line with the doctrine of
kompetenz–kompetenz enshrined in Section 16 of the Arbitration & Conciliation Act, 1996
(Arbitration Act). The Court further noted that the Arbitration Act aims to promote party
autonomy and limits judicial intervention in the arbitration process. It was determined that
jurisdictional issues such as restrictions must be addressed by the arbitrator as outlined in
Section 16 of the Arbitration Act, rather than the High Court at the pre-reference point in
7
MANU/SC/1787/2005 : (2005) 8 SCC 618
accordance with Section 11 of the Act. The Court concluded that once an arbitrator is
appointed, all matters including jurisdictional issues must be adjudicated by the arbitrator.

The Apex Court determined that the 2015 Amendment Act altered the appointment procedure
under Section 11 of the Act by limiting the scope of authority under subsection (6A) to the
examination of the presence of an arbitration agreement at the preference stage.
Consequently, the Court is only obligated to consider the validity of the arbitration agreement
as outlined in Section 11(6A).

The theory of kompetenz-kompetenz seeks to limit judicial intervention in order to prevent

the arbitration process from being hindered in the event that one party raises a preliminary
objection. However, an exception can be made when the arbitration agreement is alleged to
have been procured through fraud or deception, or when parties have entered into a draft
agreement prior to signing a final contract. This exception was stated by the Apex Court in
M/s Indian Farmers Fertiliser Cooperative ltd. v. Bhadra Products, where the tribunal was
instructed to address the limitation issue under Section 16 of the Act.

Recommendation:

In the above case of Uttarakhand Purv Sainik Kalyan Nigam v. Northern Coal Field Ltd, the
High Court has the power to appoint an arbitrator under Section 11 (6) of the Arbitration and
Conciliation Act, 1996. The appointment of an arbitrator by the High Court is important to
ensure a smooth and fair dispute resolution process between the two parties.

The High Court should take into consideration the relevant facts and circumstances of the
case before appointing an arbitrator. It should ensure that the arbitrator selected is impartial
and independent, and has the necessary experience and expertise to handle the dispute. The
High Court must also ensure that the parties are provided ample opportunity to put forth their
views and concerns.

The High Court should also take into consideration the costs of the arbitration proceedings,
and should ensure that the costs are reasonable and affordable. The High Court should make
the appointment of the arbitrator in a timely manner, to ensure that the dispute can be
resolved as quickly and efficiently as possible.

Overall, the High Court should ensure that the appointment of the arbitrator is in the best
interests of both parties, and is done in a manner that is fair and just.
Conclusion:

The Supreme Court of India in the case of Uttarakhand Purv Sainik Kalyan Nigam Ltd &
Northern Coal Field Ltd vs. State of Uttarakhand & Ors, held that when a dispute arises
between parties regarding the validity of an arbitration agreement, such an issue must be
addressed by the arbitral tribunal in accordance with Section 16 of the Arbitration and
Conciliation Act, 1996, based on the Kompetenz-Kompetenz principle. The Court further
stated that the amendment to Sections 8 and 11 of the Act in 2015 limits the scope of the
Court's authority to examine the presence of an arbitration agreement at the preference stage.
The Court concluded that, once an arbitrator is appointed, all matters including jurisdictional
issues must be decided by the arbitrator. Therefore, the Supreme Court of India in the case of
Uttarakhand Purv Sainik Kalyan Nigam Ltd & Northern Coal Field Ltd vs. State of
Uttarakhand & Ors, held that the issue of limitation should be decided by the arbitral tribunal
in accordance with the Kompetenz-Kompetenz principle, as enshrined in Section 16 of the
Arbitration and Conciliation Act, 1996.

The decision of the Supreme Court in Uttarakhand Purv Sainik Kalyan Nigam v. Northern
Coal Field Ltd is a landmark decision that has opened the door for parties to approach the
High Court in case of refusal by the other party to appoint an arbitrator. The decision has also
instilled confidence in parties that the High Court will take into account their representations
and make an appropriate appointment for the purpose of resolving their dispute amicably.