Supreme Court on suo motu appointment of an Arbitrator by Court.

Supreme Court on suo motu appointment of an Arbitrator by Court.
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The Supreme Court (“SC”) has recently vide its Order dated July 14, 2020 in the matter of State Trading Corporation of India Ltd vs. Jindal Steel and Power Limited & Ors, (Civil Appeal No. 2747 of 2020) set aside the order of the Delhi High Court (“DHC”) for suo motu appointing arbitrator while ignoring the agreement between parties which provides for mechanism to settle the dispute arising between them by arbitration.

Certain dispute arose between the State Trading Corporation of India Ltd. (“STCPL”) and Jindal Steel and Power Ltd. (“JSPL”) and as per the agreement between them the dispute was to be resolved through arbitration under the aegis of Indian Council of Arbitration and rules framed thereon. As such, an Application under Section 9 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) was filed by the JSPL before the DHC for restraining STCPL from invoking and encashing the performance bank guarantees amounting to Rs.88.40 Crores, which were executed in favour of STCPL, among other directions.

The Single Judge of DHC vide its Order rejected the JSPL’s prayer for restraining the STCPL from encashing the bank guarantees. Challenging the said Order, JSPL approached the division bench of the DHC wherein it suo moto appointed an arbitrator ignoring the mechanism under the agreement between parties.

Aggrieved by the said Order of DHC’s division bench, STCPL approached SC through present civil appeal. The SC after perusing the relevant dispute and pertinent clauses of the agreement between the parties found that disputes between parties had to be settled in accordance with the rules of arbitration of the Indian Council of Arbitration. The SC held that when the parties have agreed to a procedure for appointment of arbitrator, ignoring the same, the DHC was ‘not right’ in suo motu appointing an arbitrator in an appeal arising out of proceedings under Section 9 of the Arbitration Act.

Accordingly, the SC set aside the division bench’s Order of DHC and gave liberty to the parties to initiate arbitration before the Indian Council of Arbitration.

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