Functus Officio: The Supreme Court reinforces finality and restricts judicial intervention

Namrata Ghosh^[i]

Introduction

The apex Court in its recent ruling in the case of Hindustan Construction Company Ltd v. Bihar Rajya Pul Nirman Nigam Limited, noted, and importantly so, that “arbitration is often a friend in conferences, but a foe in practice”; this question is the very core of the condition of arbitration of disputes in the country.

India’s arbitration framework has undergone various amendments to reduce judicial interference and promote arbitral autonomy. However, over the years, parties have tried to exploit procedural routes, intended to favour arbitration, to delay proceedings. Despite the statutory safeguards, the tug-of-war between judicial oversight and arbitral autonomy persists.

Background of the present case

In this case, Bihar Rajya Pul Nirman Nigam Limited (hereinafter, “The Respondent”) entered into a construction contract with Hindustan Construction Company Ltd (hereinafter, “The Appellant”). The contract contained a Clause providing for the settlement of disputes through arbitration. Subsequently, issues related to compensation for additional costs and losses arose between the parties, and the Respondent failed to appoint an arbitrator. Hence, an application under Section 11 of the Arbitration & Conciliation Act 1996 (hereinafter, “ACA”) was filed, and a Sole Arbitrator was appointed. The award given by the arbitrator in this dispute was accepted by both parties.

Consequently, issues related to the extension of time for completion of work and compensation for additional costs arose between the parties, and once again, a sole Arbitrator was appointed under Section 11 by the HC on the failure of the Respondent to appoint one. Despite participating in the arbitral proceedings for more than three years, the Respondent filed for review of the order under Section 11, which resulted in the stay of the arbitral proceedings. A total of seventy sittings were conducted in three years, and the proceedings have reached the stage of final arguments.

The Respondent challenged the Section 11(6) appointment order, seeking a review of the order. Acting on this, the High Court (hereinafter, “HC”) reopened these issues that already attained finality under the original section 11 order. Subsequently, on the challenge by the Appellant, the Supreme Court (hereinafter, “SC”) held that the HC had no jurisdiction to review or re-open a concluded Section 11(6) order because the Act reflects principles of party autonomy and minimum court intervention.

Furthermore, it opined that once the arbitrator is appointed, the court becomes functus officio. Review powers cannot be used to revisit issues that have already been decided, particularly when the party has participated in the arbitration.

Section 11 of the ACA and its statutory role

Arbitration agreements impose an obligation on parties to arbitrate disputes within their scope. Section 11 gives effect to this obligation by providing a statutory mechanism for appointing arbitrators in the event of a deadlock, thereby keeping such disputes within the arbitral forum rather than the courts.

Under the 1940 Act, the duty to appoint the arbitrators was done by the court, which often caused a delay in the process. The 1996 act, on the other hand, resorted to the judiciary only when necessary, as it allowed the parties to determine their own appointment process. The 2015 amendment further streamlined this process, and the 2025 Amendment has also emphasised arbitral autonomy and minimal court intervention.

Further, courts have held in the cases of Narayan Prasad Lohia vs Nikunj Kumar Lohia and M/S. Gayatri Project Limited vs Madhya Pradesh Road Development, that once arbitration proceedings are underway, the parties cannot subsequently challenge the arbitral tribunal's jurisdiction, thereby emphasising the judiciary’s efforts to encourage arbitration.  These reforms gave the tribunal power to decide on arbitrability and the substantive issues of the dispute, thereby strengthening the Kompetenz-Kompetenz principle under section 16 of the Act, with the objective to reinforce the principles and spirit of arbitration by giving the tribunal the power to analyse its own jurisdiction.  

Power of the Court to review decisions

Courts have repeatedly held that they lack the power to review a decision made under Section 11. The SC observed in the case of Kamal Gupta vs M/S L.R. Builders Pvt. Ltd, that once an order to appoint an arbitrator under Section 11(6) of the Act is disposed of, the court cannot entertain any matter in relation to the case disposed of under Section 11(6).

Further, under Section 114 read with Order XLVII Rule 1 of the Code of Civil Procedure, 1908 (hereinafter, “CPC”), a civil court has limited review jurisdiction. The grounds are, namely, the discovery of new and important evidence which could not, with due diligence, be produced before the court; an error apparent on the face of the record; or any other sufficient reason of a similar nature. The above provision contains a corrective jurisdiction to avoid manifest injustice, but it is not expansive or tantamount to an appeal rehearing on merits.

However, there is no specific provision in ACA that expressly allows a court to challenge an order passed under Section 11. While Section 19 provides procedural flexibility to arbitral tribunals, including limited application of CPC such flexibility is not applicable to the courts exercising appointment powers. As held in judicial precedents, there is a difference between substantive review on merits and procedural review to cure basic procedural irregularities. In the absence of an explicit statutory provision, courts or institutions exercising powers under Section 11 are thus precluded from making any substantive review of their orders of appointment. At best, a limited procedural review may be upheld in rare cases where the order is rendered null and void due to jurisdictional invalidity or a grave procedural irregularity.

In the present case, the SC has taken a similar stance to the Court that has put an end to the debate on review of a decision under Section 11 and upholds the principle of Finality in the absence of an explicit provision. Notwithstanding, in the case of In S.B.P. & Co. v. Patel Engineering Ltd., the  SC held that an order passed under Section 11 is appealable before it under Article 136 of the Constitution of India. Likewise, in the instant case, the Court held that the only remedy available to challenge an order passed under Section 11 is under Article 136 and Section 16 of the ACA. Although this trend aims at ensuring justice and avoiding arbitrary appointments, it further strengthens judicial intervention and rules out any review under the Act. Nevertheless, it may cause a delay in the arbitration process and may also counter the legislative spirit of minimal judicial intervention.

Beyond the Case: Impact on Indian Arbitration

This ruling confirms the finality of orders made under Section 11, but also acknowledges that in exceptional circumstances, such as fraud or partiality resulting in a probable miscarriage of justice, limited review may be warranted. The Court also deals with the increasing abuse of judicial forums as dilatory tactics, such as delayed objections under Section 16, challenges under Section 12(5), frivolous adjournments, and collateral writ or review proceedings. Through the reiteration of the need for the resolution of arbitral disputes within the regime of the ACA, the decision clearly establishes a normative demarcation line that protects party autonomy and impartiality while preventing unjustified judicial intervention.

However, the Courts are dealing with an overwhelming number of over 66,995 pending arbitration cases. The decision is a much-needed systemic corrective, reminding all concerned parties that arbitration is a dispute resolution process that is based on expedition, finality, and autonomy. Although judicial doctrine can help limit abuse, change can only come about through legislation. First, the Parliament must remove the long-standing uncertainty in the Section 11 scheme. As has been widely observed, Sections 8 (reference to arbitration) and 11 (appointment of arbitrators) have similar roles, but only Section 8 orders are appealable under Section 37.

This asymmetry is “anomalous”. The Law Commission’s 246th Report had proposed amending Section 37 to allow appeals against Section 11 orders, but Parliament did not implement it. A legislative solution would thus specifically empower appellate review of Section 11 orders (perhaps with tight timelines), or at least confirm that the sole challenge after appointment is in the Section 34 scenario. Another critical aspect is the functus officio impact. This would prevent attempts to recharacterize finality as a “review” or new petition.

Second, India needs statutory disincentives against forum-shopping and dilatory tactics. A promising model is the expanded costs regime recently proposed in the Draft Arbitration (Amendment) Bill, 2024.  That draft would broaden Section 31-A to penalise frivolous claims as well as counterclaims, lifting the existing requirement to show delay.  The tribunals will gain an express power to order an adverse costs award in respect of any meritless or obstructive pleadings. In effect, the courts and tribunals should be required to make an award of indemnity costs and interest against the parties who bring unwarranted Section 11 claims or involve the tribunal in collateral disputes.

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^[i] Namrata Ghosh is a fourth-year BA LLB (Hons.) student from NLU Odisha.