Importance of party autonomy concerning State Trading Corporation of India Vs Jindal Steel and Power Limited and Ors case
The foundation of each arbitration proceeding is the arbitration agreement. The agreement constitutes a contract to refer to disputes, which have arisen or may arise in future between them. The liberty of parties to consensually create and execute arbitration agreements is understood as the principle of party autonomy.
This principle provides a right for the parties to international commercial arbitration to settle on applicable substantive law and the arbitration's conduct. When the laws are chosen by the parties, then they shall govern the contractual relationship. This principle dated back to the nineteenth century and was originally founded on the rule that parties to a contract are liberal to choose the law that governs their contractual relationships. In recent years, courts in India have taken pro-arbitration stands and have accorded primary importance to party autonomy, and it has now gained a lot of recognition. It was reiterated by the supreme court in the case of State Trading Corporation of India Vs Jindal Steel and Power Limited and Ors. The Supreme Court clarified that when the parties have agreed to follow a specific mechanism to settle their disputes, including the procedure for the appointment of an arbitrator, it's incorrect for courts to overlook an equivalent and suo moto appoint an arbitrator.
In the said case, disputes arose out of an agreement between the State Trading Corporation of India (Appellant) and Jindal Steel and Power Limited (Respondent) for the supply of steel rails by the Respondent to the Iranian Islamic Republic Railways (RAI). The agreement between the parties provided a mechanism for resolving disputes as per the Indian Council of Arbitration and Rules.
The Respondent approached the Delhi high court (Single Bench) under Section 9 of the Arbitration and Conciliation Act, 1996 to injunct the Appellant from invoking the performance guarantees furnished by the Respondent in favour of the Appellant. Accordingly, certain reliefs were granted by the Bench. This order of the Delhi high court was challenged by the Appellant before the Division Bench of the Delhi high court. During this appeal before the Division Bench, suo moto appointed a retired Delhi high court Judge as the arbitrator for the matter.
After this, an appeal was filed by the Appellant in the Supreme Court challenging the order passed by the Division Bench on the ground that the agreement between the parties provided for a mechanism to resolve disputes and that the suo moto appointment of an arbitrator by the Division Bench was contrary to such an agreement and the principle of Party Autonomy.
The Supreme Court held that in an agreement containing a clause, parties have chosen to follow a specific mechanism to settle their dispute. In the present case, following the Indian Council of Arbitration and the Rules, courts ought not to interfere with such an agreed mechanism. Accordingly, it had been held that the Division Bench was not right in suo moto appointing an arbitrator, and therefore the order was put aside.
In conclusion, the principle of party autonomy is recognised only when the courts are satisfied that such a mechanism isn't violative of law principles. It needs to honour an equivalent and permit the parties to proceed with the least interference possible.
 CIVIL APPEAL No(s). 2747 OF 2020
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