2022 (5) TMI 306 - SC - Indian Laws

Court quashes arbitrator replacement, directs application revival. Upholds Trial Court's dismissal.

Swadesh Kumar Agarwal Versus Dinesh Kumar Agarwal & Ors, etc., etc.

The Supreme Court quashed the High Court's decision to terminate the mandate of the arbitrator and appoint a new one under section 11(6) of the ... Termination of mandate of sole arbitrator - absence of any written contract containing the arbitration agreement - difference and distinction between subsection (5) of section 11 and subsection (6) of section 11 of the Act, 1996 - application under subsection (6) of section 11 shall be maintainable in a case where the parties themselves appointed a sole arbitrator with mutual consent? - undue delay on the part of the sole arbitrator in concluding the arbitration proceedings - rejection of application under section 14(2) of the Act, 1996 in exercise of powers under Order VII Rule 11 of CPC - HELD THAT:- In the present case, the sole arbitrator was appointed by the parties themselves by mutual consent and in the absence of any written contract containing the arbitration agreement. Therefore, application under section 11(6) of the Act, 1996 in absence of any written agreement containing arbitration agreement was not maintainable at all. Whether, in exercise of powers under subsection (6) of section 11 of the Act, 1996, the High Court can terminate the mandate of the sole arbitrator and substitute the arbitrator in view of section 14(1)(a) of the Act, 1996 on the ground that he has failed to act without undue delay and in such a situation aggrieved party has to approach the “court” to terminate his mandate? - HELD THAT:- Section 13 of the Act, 1996 shall be applicable only in a case where the arbitrator is challenged on the grounds mentioned in section 12 of the Act, 1996 - Sections 14 and 15 provide for termination of the mandate of the arbitrator. 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. On a conjoint reading of section 13, 14 and 15 of the Act, 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. 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 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. Whether, in a case where the parties themselves have referred the dispute for arbitration and appointed and/or nominated the sole arbitrator by mutual consent and in the absence of any arbitration agreement and contract containing an arbitration agreement once the arbitrator is appointed, an application under section 11(6) of the Act, 1996 to terminate the mandate of the arbitrator and to substitute the arbitrator would be maintainable? - HELD THAT:- An application under section 11(6) of the Act, 1996 shall be maintainable only in a case where there is a written agreement and/or the contract containing the arbitration agreement and the appointment procedure agreed upon by the parties, application under section 11(6) of the Act, 1996 shall be maintainable. Otherwise, the application under section 11(6) of the Act, 1996 shall not be maintainable - In the present case, the parties themselves agreed on a procedure for appointment of the arbitrator and appointed and nominated an arbitrator by mutual consent. Therefore, the application under section 11(6) of the Act, 1996 was not maintainable at all. It is to be noted that as such in the present case the proceedings before the concerned court under section 14(2) of the Act, 1996 at the instance of respondent No. 1 and 3 herein to terminate the mandate of the sole respondent under section 14(1)(a) of the Act were already pending before the concerned court when respondent No. 1 moved an application under section 11(6) of the Act and such a dispute was at large before the court in a proceeding under section 14(2) of the Act. Whether the learned Trial Court was justified in rejecting the application submitted by the appellant, which was filed to reject the applications under section 14 of the Act, in exercise of powers under Order VII Rule 11 of CPC is concerned? - HELD THAT:- It appears and it is not in dispute that the application under section 14(2) of the Act was sought to be rejected on the ground that there was no undue delay on the part of the arbitrator and therefore, his mandate is not required to be terminated under section 14(1)(a) of the Act, 1996. However, such a dispute is to be adjudicated on merits by the concerned court before whom the proceedings under section 14(2) of the Act were initiated and at the most, it can be said to be the defence, which was to be adjudicated by the concerned court. As per the settled position of law, 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 statement and/or reply to the application and/or the defence. Therefore, as such the learned Trial Court rightly dismissed the application under Order VII Rule 11 of CPC. The impugned judgment and order passed by the High Court is unsustainable and the same deserves to be quashed and set aside and is accordingly quashed and set aside. The controversy and/or the dispute, whether the mandate of the sole arbitrator under section 14(1)(a) of the Act, 1996 stands terminated or not shall have to be considered by the court on an application filed under section 14(2) of the Act, 1996. Application disposed off. Issues Involved:1. Termination of the mandate of the sole arbitrator under section 14(1)(a) of the Arbitration and Conciliation Act, 1996.2. Maintainability of an application under section 11(6) of the Act, 1996 when the arbitrator was appointed by mutual consent.3. Difference and distinction between section 11(5) and section 11(6) of the Act, 1996.4. Justification of the High Court's decision to terminate the mandate of the arbitrator due to undue delay.5. Justification of the Trial Court's dismissal of the appellant's application under Order VII Rule 11 of CPC.Detailed Analysis:1. Termination of the mandate of the sole arbitrator under section 14(1)(a) of the Arbitration and Conciliation Act, 1996:The High Court terminated the mandate of the sole arbitrator under section 14(1)(a) of the Act, 1996, citing undue and unreasonable delay in the arbitration proceedings. The Supreme Court examined whether the High Court was justified in this decision, emphasizing that such disputes should be adjudicated by the 'court' as defined under section 2(e) of the Act, 1996.2. Maintainability of an application under section 11(6) of the Act, 1996 when the arbitrator was appointed by mutual consent:The Supreme Court held that an application under section 11(6) of the Act, 1996 is not maintainable in the absence of a written agreement containing the arbitration clause. Since the arbitrator was appointed by mutual consent without a written agreement, the application under section 11(6) was deemed inappropriate.3. Difference and distinction between section 11(5) and section 11(6) of the Act, 1996:The Court clarified that section 11(5) applies when there is no agreed procedure for appointing an arbitrator, while section 11(6) applies when there is a written agreement containing the arbitration clause and an agreed procedure. The Court emphasized that section 11(6) is applicable only when there is a written agreement.4. Justification of the High Court's decision to terminate the mandate of the arbitrator due to undue delay:The Supreme Court found that the High Court erred in terminating the mandate of the arbitrator under section 11(6) of the Act, 1996. The Court reiterated that disputes regarding the termination of an arbitrator's mandate due to undue delay should be adjudicated by the concerned 'court' under section 14(2) of the Act, 1996.5. Justification of the Trial Court's dismissal of the appellant's application under Order VII Rule 11 of CPC:The Supreme Court upheld the Trial Court's decision to dismiss the appellant's application under Order VII Rule 11 of CPC. The Court noted that the issue of undue delay by the arbitrator is a matter to be adjudicated on merits by the concerned court under section 14(2) of the Act, 1996, and not at the stage of deciding the application under Order VII Rule 11 of CPC.Conclusion:The Supreme Court quashed the High Court's judgment terminating the mandate of the arbitrator and substituting a new one under section 11(6) of the Act, 1996. The Court directed that the applications under section 14(2) of the Act, 1996, previously withdrawn, be revived and adjudicated by the concerned court. The Court also upheld the Trial Court's dismissal of the application under Order VII Rule 11 of CPC. The appeals were allowed in part, ensuring that the mandate of the arbitrator would be determined by the appropriate court.