The Madhya Pradesh High Court has held that a High Court does not have the power to appoint an arbitrator in an international commercial arbitration [Ssayong v. SB Engineering].
A Division Bench of Chief Justice Sanjeev Sachdeva and Justice Vinay Saraf made the observation while setting aside an arbitral award in a dispute between Ssangyong Engineering and Construction Company Limited and SB Engineering Associates.
The Court ruled that when one of the parties is a foreign entity, the power to appoint an arbitrator vests exclusively with the Chief Justice of India or his designate, and not with a High Court.
"A conjoint reading of Sections 2(1)(f), 4 and 11 of the Arbitration Act, shows that the jurisdiction to appoint the sole or third arbitrator in an International Commercial Arbitration lies only with the Chief Justice of India or the person or institution designated by him and it is a mandatory provision and is not derogable," the Court said.
The dispute arose from a 2007 subcontract awarded by Ssangyong to SB Engineering for highway construction works for a project of the National Highways Authority of India. The contract was terminated in 2009, leading to arbitration proceedings.
A sole arbitrator appointed by the High Court passed an award in 2016, granting monetary claims to both sides. Challenges to the arbitral award under Section 34 of the Arbitration and Conciliation Act were dismissed by the Commercial Court in 2022, prompting appeals under Section 37 before the High Court.
Ssangyong raised a jurisdictional objection to the appeal before the High Court for the first time, arguing that only the Supreme Court could have appointed the arbitrator in an international commercial arbitration.
Accepting this contention, the High Court held that statutory provisions governing the appointment of arbitrators in international cases were mandatory and cannot be overridden by the conduct of parties.
The Court found that the arbitration in the present case qualified as an “international commercial arbitration” since Ssangyong is a Korean company. It, therefore, found that the Madhya Pradesh High Court lacked jurisdiction when it appointed a sole arbitrator in 2009.
As a result, the Bench declared that the arbitral proceedings and the award were “void ab initio” and unenforceable in law.
The Court also rejected the argument that Ssangyong had waived its right to make such an objection when it participated in the arbitration without raising jurisdictional objections earlier. It emphasised that defects going to the root of jurisdiction cannot be cured by consent or waiver.
The Bench reiterated that an award passed by a tribunal lacking inherent jurisdiction is a nullity and can be challenged at any stage, including for the first time in appeal.
"Section 11(6) of the Arbitration Act does not empower the person designated by the Chief Justice of High Court to appoint an arbitrator in International Commercial Arbitration but only empowers the Chief Justice of the Supreme Court of India. The provisions are mandatory in nature and cannot be waived," the Court observed.
Ssangyong was represented by Senior Advocate Ravindra Singh Chhabra with Advocates Praneesha Nayyar, Rashmeet Kaur and Jubin Prasad.
SB Engineering Associates was represented by Advocates Om Prakash and Devendra Singh.
[Read Judgment]