Whalesbook
High Courts Barred from International Arbitrator Appointments
India's rules for international arbitration have changed after a Madhya Pradesh High Court ruling. The court declared that High Courts cannot appoint arbitrators for international commercial cases. This power belongs solely to the Chief Justice of India or a designated person. This is based on Sections 11(9) and 11(12) of the Arbitration and Conciliation Act, 1996. The court stressed that these rules are mandatory and cannot be bypassed, even if parties agree otherwise.
Ssangyong Case Leads to Voided Arbitration Award
The ruling came from a dispute between South Korea's Ssangyong Engineering & Construction Company Limited (Ssangyong E&C) and India's SB Engineering Associates over a highway construction subcontract. After Ssangyong E&C terminated the contract in 2009, an arbitrator was appointed by the High Court, leading to an award in 2016. Ssangyong E&C challenged this, arguing that only the Chief Justice of India had the authority to appoint an arbitrator for this international case. The High Court agreed, stating that the original arbitration proceedings and the 2016 award were invalid from the start. This means even an award previously accepted could be nullified if the initial appointment was flawed.
Chief Justice of India Holds Exclusive Power
The High Court's decision focused on Section 2(1)(f) of the Arbitration Act, which defines international commercial arbitration, and Section 11, which covers arbitrator appointments. Since Ssangyong E&C is a foreign company, the dispute fit the definition of an international commercial arbitration. Therefore, the High Court concluded that its own earlier appointment of an arbitrator in 2009 was a jurisdictional error, making all subsequent proceedings and the 2016 award invalid. The court rejected claims that parties had waived this issue, stating that fundamental jurisdictional flaws cannot be fixed by consent. This ruling supports prior Supreme Court decisions that Indian courts cannot appoint arbitrators for arbitrations seated abroad, regardless of where the parties are from. Ssangyong Engineering & Construction is a major infrastructure firm, reporting significant revenue in 2024. SB Engineering Associates is a construction subcontractor.
New Risks for Cross-Border Contracts
This decision adds significant complexity and risk for foreign companies involved in arbitrations in India or with Indian parties. Arbitration awards can now face challenges based on how the arbitrator was appointed, not just the case's substance. Ssangyong E&C, a company with prior arbitration experience in India, must now pay close attention to jurisdictional rules. Any departure from the correct appointment process for international commercial arbitrations could completely invalidate the outcomes, no matter how long the proceedings took or how involved the parties were.
Impact on Dispute Resolution Strategy
The ruling is likely to affect how international contracts with Indian companies are written and how arbitration clauses are designed. Parties must now ensure arbitrator appointments in international commercial cases strictly follow the Chief Justice of India's directive to prevent future challenges. This decision emphasizes that legal requirements override party agreements when fundamental jurisdiction is concerned. Companies may need to review current arbitration agreements and appointments for compliance, potentially leading to closer examination of past and ongoing international arbitrations. This could impact how predictable dispute resolution is for foreign investors in India's infrastructure sector.