Supreme Court: High Court unable to end The Mandate of Arbitrator under Arbitration Act

Supreme Court: High Court unable to end The Mandate of Arbitrator under Arbitration Act

In its opinion, the Supreme Court held that an application filed under section 11(6) of the Arbitration and Conciliation Act cannot resolve a dispute/controversy on the termination of the arbitrators' mandate on the grounds listed in section 14(1)(a) of that Act.

Disputes of this nature must be resolved by a "court," defined in section 2(e) of the Act.

By exercising its powers under section 11(6) of the Act, the High Court of Madhya Pradesh terminated the mandate of the sole Arbitrator appointed by the parties themselves. As a result of section 14(1)(a) of the Act, the High Court appointed a new Arbitrator, since the sole Arbitrator's mandate has expired. According to the court, the sole arbitrator acted in an unreasonable and undue manner in delaying the arbitration proceedings.

In his argument before the Apex Court, the appellant asserted that where an Arbitrator was already designated by both parties, there was no legal basis for an application under section 11(6) either to terminate the mandate of the sole Arbitrator or to replace that Arbitrator. Defending the High Court order, the respondent contended that once it is determined that the arbitrator cannot perform the functions in light of eventualities stated in section 14(1), the mandate of the arbitrator will be automatically terminated and another arbitrator will be appointed to complete the functions.

Hence, one of the issues in the appeal was whether the High Court could terminate the arbitrator's mandate, under sub-paragraph (6) of section 11 of the Act, 1996 and substitute another arbitrator based on section 14(1)(a) of the Act, 1996, on the ground that he failed to act without undue delay?

The bench noted that termination of the mandate of the arbitrator or termination of the arbitration proceedings is dealt with the following provision….

1. According to section 13, a dispute between the parties may be challenged by either party subject to subsection (4) and if a dispute cannot be A party intending to challenge an arbitration must, within fifteen days of becoming aware of the composition of the arbitral tribunal or of any circumstances described in subsection (3) of section 12, provide the arbitral tribunal with a written statement of the reasons for the challenge. The arbitration tribunal is solely responsible for deciding if an arbitrator challenged under subsection (2) departs his office or agrees to the challenge in accordance with subsection (3) of section 13. Upon a challenge to the arbitrator's appointment failing, the arbitral tribunal shall continue the arbitration and make a decision, and whenever an arbitral decision is made under subsection (4), a party challenging that decision may apply to set that decision aside pursuant to section 34 of the Act, 1996. The challenged arbitrator must be challenged directly before the arbitral tribunal under section 13 of the Act. As a consequence, section 13 of the Act, 1996 shall only apply in circumstances where an arbitrator is challenged on the grounds outlined in section 12 of the Act, 1996.

2. Section 14 of the Act, 1996 provides that the mandate of the arbitrator shall terminate and he shall be substituted by another arbitrator in case of any eventuality mentioned in section 14(1)(a). As per subsection (2) of section 14, if a controversy remains concerning any of the grounds referred to in clause (a) of 24 subsection (1), a party may, apply to the "court" to decide on the termination of the mandate

3. Section 15 provides other grounds for termination of the mandate of the arbitrator. It provides that in addition to the circumstances referred to in section 13 or section 14, the mandate of an arbitrator shall terminate (a) where he withdraws from office for any reason; or (b) by or pursuant to an agreement of the parties.

Observations were made by the bench regarding the venues available for challenging each of the above reasons

Ground under Section 12

Parties distressed by the clarification of an arbitrator must file a formal complaint before the Arbitral Tribunal itself if the challenge is made on any of the grounds listed in section 12 of the Act.

Ground under Section 14(1)(a)

However, in case of any of the eventualities mentioned in section 14(1)(a) of the Act, 1996 and the mandate of the arbitrator is sought to be terminated on the ground that the sole arbitrator has become de jure and/or de facto unable to perform his functions or for other reasons fails to act without undue delay, the aggrieved party has to approach the concerned "court" as defined under section 2(e) of the Act, 1996. The concerned court has to adjudicate on whether, in fact, the sole arbitrator/arbitrators has/have become de jure and de facto unable to perform his/their functions or for other reasons he fails to act without undue delay. The reason why such a dispute is to be raised before the court is that eventualities mentioned in section 14(1)(a) can be said to be a disqualification of the sole arbitrator and therefore, such a dispute/controversy will have to be adjudicated before the concerned court as provided under section 14(2) of the Act, 1996.

Hence, whenever there is a dispute and/or controversy that the mandate of the arbitrator is to be terminated on the grounds mentioned in section 14(1)(a), such a controversy/dispute has to be raised before the concerned "court" only and after the decision by the concerned "court" as defined under section 2(e) of the Act, 1996 and ultimately it is held that the mandate of the arbitrator is terminated, thereafter, the arbitrator is to be substituted accordingly, that too, according to the rules that were applicable to the initial appointment of the arbitrator. Therefore, normally and generally, the same procedure is required to be followed which was followed at the time of appointment of the sole arbitrator whose mandate is terminated and/or who is replaced.

Ground under Section 15(1)(a)

So far as the termination of the mandate of the arbitrator and/or termination of the proceedings mentioned in other provisions like in section 15(1)(a) where he withdraws from office for any reason; or (b) by or pursuant to an agreement of the parties, the dispute need not be raised before the concerned court. For example, where the sole arbitrator himself withdraws from office for any reason or when both the parties agree to terminate the mandate of the arbitrator and for substitution of the arbitrator, thereafter, there is no further controversy as either the sole arbitrator himself has withdrawn from office and/or the parties themselves have agreed to terminate the mandate of the arbitrator and to substitute 27 the arbitrator. Thus, there is no question of raising such a dispute before the court.

This is the way the bench answered the above questions when it allowed the appeal:

The arbitration agreement cannot be re-enforced once the dispute is referred to arbitration and one arbitrator is selected by mutual agreement between the parties, and the arbitrator/arbitrators are so selected;

In a case where there is a dispute/controversy on the mandate of the arbitrator being terminated on the ground mentioned in section 14(1)(a), such a dispute has to be raised before the "court", defined under section 2(e) of the Act, 1996 and such a dispute cannot be decided on an application filed under section 11(6) of the Act, 1996.

Headnotes

Arbitration and Conciliation Act, 1996 ; Section 11(6) - An application under section 11(6) shall be maintainable only in a case where there is a contract between the parties containing the arbitration agreement and the appointment procedure is prescribed and is agreed upon in writing. (Para 6.2)

Arbitration and Conciliation Act, 1996; Sections 11(5) - Even in the absence of any arbitration agreement in writing between the parties, with consent the parties may refer the dispute for arbitration and appoint a sole arbitrator/arbitrators by mutual consent and parties may agree mutually on a procedure for appointing an arbitrator or arbitrators even in the absence of any written agreement. (Para 7.2)

Arbitration and Conciliation Act, 1996 ; Section 12, 14(1)(a), 15(1)(a) - If the challenge to the arbitrator is made on any of the grounds mentioned in section 12 of the Act, the party aggrieved has to submit an appropriate application before the Arbitral Tribunal itself - Whenever there is a dispute and/or controversy that the mandate of the arbitrator is to be terminated on the grounds mentioned in section 14(1)(a), such a controversy/dispute has to be raised before the concerned "court" only and after the decision by the concerned "court" as defined under section 2(e) and ultimately it is held that the mandate of the arbitrator is terminated, thereafter, the arbitrator is to be substituted accordingly, that too, according to the rules that were applicable to the initial appointment of the arbitrator - So far as the termination of the mandate of the arbitrator and/or termination of the proceedings mentioned in other provisions like in section 15(1)(a) where he withdraws from office for any reason; or (b) by or pursuant to an agreement of the parties, the dispute need not be raised before the concerned court -The same procedure is required to be followed which was followed at the time of appointment of the sole arbitrator whose mandate is terminated and/or who is replaced. (Para 6.7)

Arbitration and Conciliation Act, 1996 ; Section 11(6),14(1)(a)- Once the arbitrator was appointed by mutual consent and it was alleged that the mandate of the sole arbitrator stood terminated in view of section 14(1)(a), the application under section 11(6) to terminate the mandate of the arbitrator in view of section 14(1)(a) shall not be maintainable - The aggrieved party has to approach the concerned "court" as per subsection (2) of section 14 of the Act.(Para 8)

Code of Civil Procedure, 1908 ; Order VII Rule 11- At the stage of deciding the application under Order VII Rule 11 of CPC only the averments and allegations in the application/plaint are to be considered and not the written 37 statement and/or reply to the application and/or the defence. (Para 12)