Party’s Right To Choose Arbitrator Cannot Be Revived Once It Is Surrendered To Court U/S 11(6) Arbitration Act: Calcutta High Court

The Calcutta High Court has recently held that when a party forfeits its right to appoint an arbitrator in accordance with Section 11 of the Arbitration & Conciliation Act, 1996 (“Arbitration act”), then it cannot subsequently “trace back its steps” to revive such a right, for the substitution of a fresh panel of arbitrators, when the existing arbitrator becomes de jure/de facto unable to discharge their duties.

In holding that the substitution of a new panel would be done by the Court under Sections 14 and 15 of the Arbitration Act, and that the entire arbitration process could not be permitted to go back to the stage of the parties conferring to appoint arbitrators mutually, under Article 11 of the Act, a single-bench of Justice Moushumi Bhattacharya held:

“After all, the intent of the 1996 Act, with all the amendments up to 2019, is to speed up the process of arbitration. The intent cannot be to retrace the steps from sections 15 to section 11 whenever an arbitrator is required to be substituted…The right to choose an arbitrator was relinquished in favour of the Court appointing an arbitrator which the Court did on 22.2.2022. The respondent cannot revive that right once the arbitrator became de jure / de facto unable to act under section 14. The above discussion must and invariably tilt towards the Court appointing new arbitrators in the same manner as was done on the previous occasion on 22.2.2022 when the parties approached the Court under Section 14 of the Act. There is no statutory basis to send the parties back to the section 11(5) position.”

Brief Facts of the case

In this case, the petitioner had appointed a sole arbitrator, which was objected to by the respondent who made a written request to the appointed arbitrator to withdraw on the grounds of unilateral appointment. Such request was declined. This led to the respondent filing a Section 14 application before the coordinate bench for termination of the arbitrator. Thereafter, the Court recorded that disputed and differences had arisen between the parties, and appointed the arbitrator upon obtaining consent of both the parties.

The chosen arbitrator, thereafter communicated their inability to perform the functions on the ground of elevation to the Bench and relocation outside India. It was held that there existed no doubt that the arbitrators had become de jure and de facto unable to perform their functions under Section 14(1)(a) and Section 15(1) of the Act.

The issue of contention was on the question that, to what stage the process of arbitration needed to revert in order to enable the substitution of arbitrators, when existing arbitrators became de jure/de facto unable to perform their functions under the Arbitration act.

It was submitted by the petitioner that the Court needed to step in, in order to substitute the arbitrators, while the respondents submitted that the parties needed to be sent back in order to carry out the steps as enlisted in Section 11(5) of the Arbitration Act, which required a party in receipt of a request by the other party to agree to the appointment made by the second party within 30 days from receiving the request.

Findings of the Court

In looking at the nature of the dispute, the Court focused on Sections 14 and 15 of the Arbitration Act, in order to ascertain the scope for re-convening the process of selection of arbitrators under Section 11, for the substitution of arbitrators, when the previous panel of arbitrators had been appointed on consent between both parties, by the Court. It was observed:

“In the present case, the initial appointments of the arbitrators under the arbitration agreement was contested by the respondent on the ground of unilateral appointment and the respondent filed an application for termination of the arbitrators mandate under section 14 of the Act. However, the controversy on the appointment was laid to rest when the respondent consented to the appointments made by the Co-ordinate Bench on 22nd February, 2022. The respondent hence cannot say that the appointments which are now proposed to be made of the substitute arbitrators must be consigned to the drill of section 11(5) where the parties have to agree on the appointment within 30 days and thereafter approach the Court if they are unable to do so.

The reason for the above view is the continuity envisaged in sections 15(2) and (3) in the performance of the arbitrator’s duties. While section 15(2) provides for an appointment of a substitute arbitrator in accordance with the rules that were applicable to the appointment of the arbitrator being replaced, section 15(3) ensures that the arbitration remains uninterrupted by giving the option to the substitute arbitrator to either repeat the hearings already held by the arbitrator or commence the proceedings anew. The flow of proceedings continues till section 15(4) where the validity of orders passed by the arbitral tribunal, pre-replacement, are deemed to remain undisturbed regardless of a change in the composition of the arbitral tribunal. The interpretation of the statutory position agrees with the facts. The records show that the arbitrator/s held a few sittings before becoming unable to perform her functions. This fact also leans towards continuity of the arbitration already initiated rather than relegating the parties to a stage which is prior even to the first appointment. The second appointment, as stated above, was done by the Court with the consent of parties.”

Party autonomy takes a back-seat once the Court makes the appointment, it said.

In rejecting the respondents argument that the parties should be allowed to go back to the Section 11 stage in order to concur or dispute each-others choice of arbitrator, the Court held that once a panel of arbitrators had been appointed by the Court on 22^nd February 2022, upon taking consent of both parties, the question of returning to the Section 11 stage had already become moot.

In disposing of the petition and appointing a fresh-panel of two arbitrators, the Court held:

“There is little doubt that party autonomy is one of the fundamental underpinnings of the Act…The right to choose an arbitrator in accordance with an agreed procedure for appointment however stops at the doorway of 11(6) when the parties surrender that right to the High Court or the Supreme Court, as the case may be. The Court then steps in to make that choice in the matter of appointment of an arbitrator. Once the Court intervenes in the matter of appointment and the arbitration is set in motion, the parties must revert to the Court in all subsequent interruptions in that process. There is no provision in the 1996 Act to support the contention that the parties be relegated to the 11(5) stage every time the mandate of the arbitrator comes to an end and a substitute arbitrator is required to be appointed."

It added,

"The scheme of the Act also does not support rewinding the clock every time the arbitration comes to a halt - or is stalled - for any of the reasons contemplated under sections 13,14 and 15 (termination and substitution) or even 29-A which provides for a time limit for making of the award in domestic arbitrations… Once the arbitral proceedings have commenced under section 21 and the appointment / dispute between the parties with regard to the appointment of arbitrator is put to rest by the Court under section 11(6), the parties cannot be permitted to re-set the clock to a fresh date of commencement of arbitral proceedings on the pretext of substitution.”

Case: Srei Equipment Finance Limited v. Seirra Infraventure Private Limited

Coram: Justice Moushumi Bhattacharya

Citation: 2023 LiveLaw (Cal) 189

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