APPOINTMENT OF SUBSTITUTE ARBITRATOR BY COURT

Introduction:

The present case[1]revolves around sections 11 and 15(2) of the Arbitration and Conciliation Act, 1996 (“Act”) where an arbitrator appointed by the Court had withdrawn from his mandate and a substitute Arbitrator was to be appointed. Section 15(2) of the Act specifies that in case the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.

Facts of the Case:

Disputes pertaining to the retirement deed arose between the partners of a partnership firm for which the applicants had first sent a letter-cum-notice, on August 14, 1998 to the respondents. Subsequently, a notice was sent to the respondent to appoint an arbitrator. On the failure of the respondents to do so within 30 days of the notice, the applicants approached the Hon’ble Court by means of an application under Section 11(6) of the Act.

Respondent in its defence submitted that the dispute is of such a nature that it cannot be adjudicated by the arbitrator and requires adjudication under the provisions of the Trade and Merchandise Marks Act, 1958, to which, the Court passed an order appointing a retired judge of the court to act as arbitrator.

The arbitrator issued notices to the parties for preliminary and subsequent hearing to which the parties sought adjournment on the ground that they were negotiating a compromise. Approximately a period of 6 years passed in which no arbitration proceedings took place. Since the arbitrator was resigning from such professional work, he terminated his mandate under section 25(a) of the Act and affirmed that the parties are free to appoint another arbitrator.

 Issues before the Court:

  1. Whether a substitute arbitrator can be appointed after a sole arbitrator resigns where the arbitration clause/agreement is silent on the procedure to be followed to appoint anarbitrator under section 11 read with section 15(2) of the Arbitration and Conciliation Act, 1996?
  2. Whether in present case,the parties are free to choose a substitute arbitrator?

Arguments of the Petitioner:

Petitioner argued that the arbitrator has terminated his mandate under section 25(a)[2] of the Act as no arbitration proceedings took place, inasmuch as, no claim petition was ever filed. Further stating that due to absence of any procedure to be followed by the parties for the appointment of an arbitrator under the retirement deed, the only course open to the parties was to apply for appointment of a substitute arbitrator under section 15(2) of the Act for which reliance was placed onvarious decisions of the Supreme Court.

The petitioner placed reliance onShaileshDhariyavan v. Mohan BalKrishan[3], where for the purpose of appointment of a substitute arbitrator, the agreed procedure, already existing between the parties for the appointment of arbitrator would fall within the meaning of the word “rules” mentioned in section 15(2) of the Act. Therefore, the same must be followed for appointing a substitute arbitrator as it had been applied for appointment of the original arbitrator.

Further, the petitioner referred to the matter reported on Anil v. Rajendra[4], stating thatonce the objections have been raisedby the respondent under section 11 of the Act in the original proceedings, no further scope survives for any fresh or other objections, on the principle of res-judicata.

 Arguments of the Respondent:

Section 15(1)(a) of the Act provides for termination of the mandate of an existing arbitrator. Thus, it was submitted thatneither any arbitration claim came to be filed by the applicant nor any proceedings were conducted by the arbitrator when the mandate of the arbitrator terminated owing to his withdrawal.

Respondent further submitted that in view of the clear mandate of section 15(2) of the Act, for the purpose of appointment of a substitute arbitrator, the ‘rules’ that were applicable to the appointment of the first Arbitrator, would have to be re-applied. Thus, relying on section 11(5) of the Act, it has been further submitted that the present application is not maintainable in the absence of any statutory notice having been first issued by the applicant for appointment of a substitute Arbitrator.

Judgment:

It was held that:

  1. In all the cases cited by the arbitrator, the first arbitrator was appointed by the parties and not by the respective High Court or the Supreme Court. Since, in the case under reference, the arbitrator was appointed by the court, therefore, the authority to appoint the substitute Arbitrator is also vested with the court.
  2. Also in cases cited, there pre-existed a set of agreed ‘rules’ between the parties to appoint a consented arbitrator. Along with that, the parties have exercised their power to appoint such/first Arbitrator. Whereas in the case under reference, no agreed ‘rules’ exist between the parties.

Therefore,when the parties failed to appoint an arbitrator within the statutory time limit of thirty days, the court appointed an independent arbitrator. It was further held that there is no provision under the Act where the parties could, thereafter regain their authority to appoint an arbitrator.

The court further explained its point by citing a Supreme Court judgment i.e. in ShaileshDhairyavan[5], in which it was held thatthe same ‘rules’ must be followed for appointing a substitute arbitrator as it had been applied for appointment of the original arbitrator. TheHon’ble Court alsorelied on certain Apex Court judgments likeS.B.P. and Company v. Patel Engineering Limited[6], Government of Haryana PWD Haryana Branch v. G.F. Toll Road Private Limited and others[7] and Yashwith Constructions (P) Ltd. v. Simplex Concrete Piles[8]where it was laid down that a substitute Arbitrator may be appointed according to the rules that were applicable to the appointment of the original arbitrator where the word ‘rules‘ would not be confined to statutory rules or the rules framed by the competent authority but would also include the terms of agreement, entered into between the parties.

Conclusion:

The present judgment throws light on the question of termination and substitution of arbitrator.In ACC Ltd. v. Global Cements Ltd.[9], the Hon’ble Court held that the procedure agreed by the parties for the appointment of the original arbitrator is equally applicable to the appointment of a substitute arbitrator, even if the arbitration agreement does not specifically say so. Interestingly, in the present case, the Apex Court relied of many of its judgments stating that it has the authority to appoint a substitute arbitrator, but it is respectfully submitted that the parties to the dispute must be given the authority to choose a substitute arbitrator and if they fail to do so, then the court can intervene as, while appointing the original arbitrator, it was the parties to the dispute who had the authority to appoint an arbitrator and on their failure to do so, the court interceded.

[1] M/S BasantIspatUdyog P. Ltd. v. M/S Basant Industries and 2 others, 2019(6) R.A.J. 256(All).

[2] The claimant fails to communicate his statement of claim in accordance with sub-section (1) of Section 23, the arbitral tribunal shall terminate the proceedings.

[3]2016(3) SCC 619.

[4]2015(2) SCC 583.

[5]Supra 2.

[6]2009(10) SCC 293.

[7]2019(3) SCC 505.

[8]2006(6) SCC 204.

[9]ACC Ltd. v. Global Cements Ltd., (2012) 7 S.C.C. 71 (India).

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