SBP & Co. v. Patel Engineering Ltd. [(2005) 8 SCC 618] is a significant judgment that redefined the role of Indian courts in the appointment of arbitrators. It clarified the scope of judicial intervention under Section 11 of the Arbitration and Conciliation Act, 1996.
Case Background: SBP & Co. had a dispute with Patel Engineering, arising out of a contractual agreement that included an arbitration clause. When Patel Engineering applied for appointment of an arbitrator under Section 11(6), the issue arose whether the Chief Justice’s role in appointing the arbitrator was administrative or judicial.
Key Legal Issue: Whether the function of the Chief Justice or his designate under Section 11 is administrative or judicial in nature.
Supreme Court’s Observations: The Constitution Bench of the Supreme Court held that the Chief Justice’s function under Section 11 is judicial, not administrative. This meant that the court had the authority to examine:
- The existence and validity of the arbitration agreement
- Whether the dispute is arbitrable
- Whether the conditions under Section 11(6) are satisfied
Key Contributions:
- Established that the appointment of an arbitrator by the Chief Justice is a judicial act
- Allowed courts to decide preliminary issues that impact arbitration proceedings
- Strengthened the oversight role of judiciary at the initial stage of arbitration
Impact: The ruling was both applauded and criticized. While it provided safeguards against frivolous arbitration claims, it also increased judicial intervention, which delayed the arbitration process. This led to legislative changes through the 2015 Amendment, which gave the power of appointment to arbitral institutions and limited court scrutiny.
Conclusion: SBP & Co. v. Patel Engineering was instrumental in defining the judicial role in arbitration appointment. It shaped the structure and functioning of institutional arbitration in India and served as a catalyst for future reforms.