Court's Jurisdiction To Review Order U/s. 11 Of Arbitration & Conciliation Act Cannot Touch Upon Merits Of Case- Delhi HC

The Delhi High Court recently held that the Court's jurisdictional ability to review the orders under section 11 of the Arbitration and Conciliation Act, 1996, the Act, 1996 does not influence on substantive concerns or the questions that touched upon the merits of the case.

The Bench of Justice Chandra Dhari Singh observed that "It is also well-established that a substantive review is distinct from a procedural review. The power of substantive review must be bestowed in a court by statute, and in the absence of such power, the court cannot engage in substantive review. However, every court and tribunal is obligated to conduct a procedural review of its judgement and, if a procedural error is discovered, to reverse the decision."

The Bench further observed that “To address unintentional errors or injustice, exceptions have been carved out both statutorily and legally. The courts withheld this authority to prevent misuse of the legal system or a miscarriage of justice, even in the absence of any statutes or norms defining the situations under which it may review an order.”

In this case, agency agreement was executed between the petitioners and the respondents whereby the petitioner firm was to provide the material to respondent and who in turn would sell the goods for highest profits and the petitioner would receive payments in exchange for the supplies. This left a balance of Rs. 9,67,16,507.39 /- that was owed to and receivable from the respondent firm.

When the outstanding balance was not paid by the respondent firm after repeated requests, disputes arose between them. Meanwhile, one of the partners had passed away and the petitioner partnership firm automatically dissolved by virtue of Section 42(c) of the Partnership Act, 1932. To settle the dispute, the petitioner firm approached the High Court under Section 11 of the Act, 1996 to appoint a sole arbitrator. The High court appointed the sole arbitrator. Aggrieved by such appointment, the respondent filed the application for review.

Advocate Surender Gupta appeared for the petitioner/non-applicant and Advocate Sunil K. Jain appeared for Respondent 1/ applicant

Issues dealt with were-

• Whether dissolution of partnership firm would bar the erstwhile partner to invoke Section 11 of the Act, 1996, in case of a disagreement with a third party?

The Counsel for the respondent submitted that both of firms that were parties to the Agency Agreement that contained the arbitration clause had already been dissolved and that the petitioner-firm, which was a new firm, did not have the legal status or locus standi to invoke the arbitration clause.

The Court, interpreting Section 16(1)(a) and Section 40(1) of the Act, 1996, observed that the arbitration provision would continue in effect even after the death of a partner caused the dissolution of the partnership. And therefore, the petitioner firm was not barred from invoking the arbitration clause.

“it is imperative to note that a partnership firm is nothing more than a compendium of the partners' individual names. An act done by a firm is an act done by its partners. Moreover, for the purposes of winding up or dissolution, it is necessary to complete the entire transaction pending between the firm and third party. Consequently, the said firm shall not be barred from invoking the arbitration clause.” observed the Court.

• Whether appointment of an arbitrator by the virtue of Section 11 of the Act, 1996 should be reviewed?

The Counsel for the petitioner/non-applicant submitted that as per the well-established legal principle, the remedy of review was a legislative remedy, and if a statute was silent about the remedy of review, it could not be inferred with and therefore, could not be entertained.

The Court observed that judicial review of section 11 orders was no longer ‘res integra’ and that the Courts could examine orders with procedural irregularities and said that “The court's jurisdictional ability to review the orders under section 11 of the Act, 1996 has no influence whatsoever on substantive concerns or questions touching upon the merits of the case, such as the jurisdiction of a Tribunal or the validity of evidence.”

• What is the scope of review and whether the present application seeking review of Order dated 2nd September, 2019 be allowed?

The Counsel for the petitioner/non-applicant argued that it was established case law that a review of an order appointing an arbitrator under Section 11 of the Act, 1996 was not permissible in law. This was due to the fact that the statute in question, the Act, 1996, does not contain any provision as such regarding the review of an order appointing an arbitrator.

The Court observed that Review referred to re-examination or reconsideration both literally and legally and said that the only errors that were apparent on record might be reviewed and errors required to be discovered through a process of reasoning cannot be reviewed. The respondent / applicant had failed to point out any mistake that was obvious on the face of the record, which was required for a cause of review.

The Court observed that “At the time when this Court delivered its order appointing an arbitrator, all parties were present whereby, the respondent/applicant herein failed to express any objections. Therefore, this Court finds no basis to interfere with or reconsider the impugned order appointing the Sole Arbitrator for review.”

Accordingly, the application for review was dismissed as being devoid of merit.

Cause Title- M/s Shyamjee Prepaid Services v. M/s Top Steels and Mrs. Renu Devi & Anr. 

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