Appointment Of Arbitrator Under SEZ Act Lies With Central Government, Not High Court: Kerala High Court

The Kerala High Court on Friday held that the High Court cannot invoke its powers under Section 11 of the Arbitration and Conciliation Act, 1996, in disputes governed by the Special Economic Zones Act, 2005, where the statute vests the power to appoint an arbitrator with the Central Government and the requirements for the exercise of Section 11 jurisdiction are not satisfied.

A coram of Justice S Manu rejected an arbitration request seeking the appointment of an arbitrator to resolve disputes with a company operating in the Infopark Special Economic Zone.

Anoop Nambiar had entered into an agreement with Woxro Technology Solutions Pvt Ltd, a company operating in the Special Economic Zone, for software development. Disputes subsequently arose between the parties.

Nambiar issued a legal notice to the Development Commissioner of the SEZ requesting appointment of an arbitrator under Section 42 of the Special Economic Zones Act, 2005, referring to Section 42(3), but no action was taken.

He thereafter approached the High Court under Section 11 of the Arbitration and Conciliation Act, 1996 seeking appointment of an arbitrator to resolve the dispute.

Nambiar argued that since the competent authority had failed to appoint an arbitrator under Section 42 of the SEZ Act despite the request, the petitioner was justified in approaching the High Court under Section 11 of the Arbitration and Conciliation Act for appointment of an arbitrator.

The court observed that the SEZ Act provides for designated courts to adjudicate civil disputes arising in Special Economic Zones, and in their absence, such disputes must be referred to arbitration, with the arbitrator to be appointed by the Central Government.

"Thus, in the matter of resolution of disputes of civil nature, the SEZ Act envisages a special forum and in the absence of it, resort can be made to arbitration.” it observed.

On the question of jurisdiction under Section 11, the Court said that the High Court can appoint an arbitrator only when the parties fail to reach consensus on the appointment and when a valid arbitration agreement and request under Section 21 of the Arbitration and Conciliation Act are established.

“In the instant case, the circumstances under which the power of the High Court under Section 11 of the Arbitration and Conciliation Act can be exercised do not exist. No valid arbitration agreement has been produced. No request has been made by the petitioner to the 3rd respondent for appointment of an arbitrator.” it noted.

The Court held that power to appoint an arbitrator under Section 42 of the SEZ Act is vested with the Central Government. It added:

“Even if the said power is not exercised by the Central Government despite being requested to do so, the same cannot be a reason for the High Court to usurp the said power and appoint an arbitrator in a proceeding under Section 11 of the Arbitration and Conciliation Act.”

The bench also rejected Nambiar's argument that provisions of the Arbitration and Conciliation Act apply to all arbitration under the SEZ Act.

“This contention is the result of a misreading of the provisions of Section 42(3) of the SEZ Act. By virtue of Section 42(3), provisions of the Arbitration and Conciliation Act have been made applicable to the arbitrations under the SEZ Act 'as if the proceedings for arbitration were referred in settlement or decision under the provisions of the Arbitration and Conciliation Act, 1996'" it held.

Accordingly, the Court rejected the arbitration request as not maintainable, while granting liberty to the petitioner to seek appropriate remedies in accordance with law.

For Petitioner: Advocates P Jayabal Menon and Rekha Agarwal

For Respondents: Advocate Mansoor B.H, CGC