Delhi High Court: Whether On Demise Of One Of The Arbitrators, The Statutory Provision That Comes Into Play Is Section 15(2) Or Section 11 Of The Indian Arbitration Act?

Delhi-High-Court

The procedure in respect of appointment of arbitrators is prescribed under Section 11 of the Arbitration & Conciliation Act, 1996 (‘Arbitration Act’). For appointment of a substitute arbitrator, Section 14 read with Section 15 attains relevance. Section 14 (1)(a) of the Arbitration Act ordains that, on an arbitrator becoming de jure or de facto unable to perform his functions, his mandate shall terminate. Section 15(2) further provides that, where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules applicable to the appointment of the arbitrator being replaced.

In view of the aforesaid provisions, consider a situation where, in an arbitration governed by the Indian Arbitration Act, an arbitrator appointed by one of the parties expires before the final adjudication of the dispute. In such a scenario, can such party argue that since consequent to the demise of its arbitrator, he is de facto unable to perform his functions as arbitrator and therefore, Section 15(2) became applicable, and as a sequitur such party is required to appoint a substitute arbitrator according to the rules that were applicable to the appointment of the arbitrator being replaced i.e. Section 11 of the Indian Arbitration Act? A somewhat similar question was posed before the Delhi High Court in Dsc Ventures Pvt Ltd. vs Ministry Of Road Transport decided on 29 June 2020.

In the given case, the petitioner moved an application for appointment of a ‘substitute arbitrator’ under Section 11 of the Arbitration Act, reading it with Section 15(2) of the Arbitration Act as aforesaid. The petitioner further averred that once the limitation period of thirty days as prescribed under the Indian common law[1] for the appointment of a substitute arbitrator is passed, it is the Court which should appoint a substitute arbitrator in place of the demised arbitrator under Section 11 of the Arbitration Act.

While deciding this question, the Court noticed that Section 15(2) does not, either expressly or by necessary implication, make the provisions of Section 11 applicable to the appointment of a substitute arbitrator, in place of the arbitrator who has become unable to perform his functions. The only provision, relating to appointment of arbitrators, which stipulates any time period thereof in the Arbitration Act, is Section 11(4). However, the Court held that Section 11(4), in its express terms, does not, apply in the present facts for two reasons:

  • firstly, because the provision relates to the initial appointment of arbitrators, and not to the appointment of a substitute arbitrator and,
  • secondly, because no request, to appoint a substitute arbitrator, was ever made, by the petitioner to the respondent.

Whereas Section 11(4), expressly, applies only to situations in which the appointment procedure in Section 11(3) is applicable. Section 11(3), in turn, applies to situations in which there is no agreement, relating to the procedure for appointing arbitrators, between the parties, and the arbitration is to be conducted by three arbitrators. Thus, sub-sections (2), (3) and (4) of Section 11, seen together, ordain that

  • the parties are free to agree on a procedure for appointing the arbitrator, or arbitrators,
  • failing any such agreement, in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two arbitrators, so appointed, shall appoint a presiding arbitrator and
  • if such a procedure applies, and
    • either party fails to appoint its arbitrator, within thirty days from the receipt of a request, to do so, from the other party, or
    • the two arbitrators, appointed by the parties, fail to agree on a presiding arbitrator within thirty days of their appointment,

the High Court would appoint the arbitrator, on application by either party.

The position, in law is, no longer res integra, being squarely covered by the judgement of the Supreme Court in Yashwith Constructions (P) Ltd v. Simplex Concrete Piles India Ltd.[2] wherein the Supreme Court while deciding the similar lis observed as under:

The withdrawal of an arbitrator from the office for any reason is within the purview of Section 15(1)(a) of the Act. Obviously, therefore, Section 15(2) would be attracted and a substitute arbitrator has to be appointed according to the rules that are applicable for the appointment of the arbitrator to be replaced. Therefore, what Section 15(2) contemplates is an appointment of the substituted arbitrator or the replacing of the arbitrator by another according to the rules that were applicable to the appointment of the original arbitrator who was being replaced. The term “rules” in Section 15(2) obviously referred to the provision for appointment contained in the arbitration agreement or any rules of any institution under which the disputes were referred to arbitration. There was no failure on the part of the concerned party as per the arbitration agreement, to fulfil his obligation in terms of Section 11 of the Act so as to attract the jurisdiction of the Chief Justice under Section 11(6) of the Act for appointing a substitute arbitrator. Obviously, Section 11(6) of the Act has application only when a party or the concerned person had failed to act in terms of the arbitration agreement. When Section 15(2) says that a substitute arbitrator can be appointed according to the rules that were applicable for the appointment of the arbitrator originally, it is not confined to an appointment under any statutory rule or rule framed under the Act or under the scheme. It only means that the appointment of the substitute arbitrator must be done according to the original agreement or provision applicable to the appointment of the arbitrator at the initial stage.

Applying the above observations of the Supreme Court, in the identical facts of the present case, the Delhi High Court held that a conjoint and juxtaposed reading of Sections 11(6) and 15(2), of the Arbitration Act, in the light of the law laid down in Yashwith Constructions (P) Ltd, discloses that it is only if there is failure to appoint the substitute arbitrator, in accordance with Section 15(2) – meaning, in accordance with the arbitration provision contained in the agreement between the parties – that recourse could be had, to Section 11(6), and not otherwise.

Disclaimer: The views expressed in this post are mine and do not reflect the views of the organisation(s) I am engaged with

[1] Though no time period, within which the arbitrator is required to be appointed, finds place in Section 11 (6), the law declared by the Supreme Court in Datar Switchgears Ltd v. Tata Finance Ltd (2000) 8 SCC 151, Punj Lloyd Ltd v. Petronet MHB Ltd (2006) 2 SCC 638, U.O.I. v. Bharat Battery Manufacturing Co. (P) Ltd3 and by this Court in Zion Promoters & Developers Pvt Ltd v. Ferrous Infrastructure Pvt Ltd (2007) 7 SCC 684 made it clear that the party, who was required to appoint the substitute arbitrator, had to do so within thirty days from the date on which it was made aware of the necessity of doing so and, in any case, had to do so before the other party approached this Court, under Section 11 (6), for appointment of the substitute arbitrator.

[2] (2006) 6 SCC 204

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