Court Has Authority To Appoint Sole Arbitrator Even Though Arbitration Agreement Specified Three-Member Tribunal: Delhi High Court Allows Section 11(6) Petition

The bench held that because the parties have not been able to arrive at the name of an arbitrator, the petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 was not premature and was maintainable under the law.

Brief Facts:

The Petitioner, engaged in the business of providing seamless security solutions, was approached by the Respondent to deploy security personnel at various dealership sites. Consequently, a Services Agreement was entered between the parties, for a term of one year from 16.08.2020 to 15.08.2021, which was subsequently extended from 16.08.2021.

On 02.12.2022, the Respondent terminated the security services of the Petitioner and provided a month's notice with termination effective and assured settlement of payments by that date. The Petitioner acknowledged this termination. However, later the Petitioner informed the Respondent that services would be withdrawn by 31.12.2022 and requested the release of pending payments. The Respondent then revoked the termination and requested an extension of services until 31.01.2023, which the Petitioner agreed to, contingent on the clearance of 75% of the arrears. The Respondent failed to clear the arrears which led to the Petitioner withdrawing its services.

Despite various reminders, the Respondent failed to settle the pending payments. Consequently, the Petitioner invoked arbitration. The Respondent denied the existence of disputes beyond 16.08.2022 but nominated Justice H.R. Malhotra (Retd.) as the arbitrator. The Petitioner responded on 12.09.2023 and expressed willingness to settle amicably and suggested that a third arbitrator be nominated by the arbitrators appointed by both parties. However, no action was taken by the Respondent.

Therefore, the Petitioner approached the Delhi High Court (“High Court”) and requested for appointment of an arbitrator in addition to those nominated by the parties. The Respondent contested this petition and argued that according to the arbitration clause, there should be a panel of three arbitrators. The Respondent claimed to have already proposed one name, and with the Petitioner proposing another, the two would appoint a third arbitrator together.

Observations by the High Court:

The High Court noted that Clause 7 of the agreement explicitly stated that disputes shall be referred to a sole arbitrator if both parties can agree on one; if not, a panel of three arbitrators will be constituted, with each party appointing one arbitrator and the two appointed arbitrators selecting the third.

Given the evident lack of consensus between the parties on the name of an arbitrator, the High Court held that the petition was neither premature nor in violation of the agreed procedure. It noted that the inability of the parties to agree on an arbitrator justified the filing of the petition.

The High Court referred to the decision of the Supreme Court in Union of India (UOI) vs. Singh Builders Syndicate (2009) 4 SCC 523, where the Supreme Court upheld the appointment of a sole arbitrator by the High Court despite the arbitration agreement calling for a three-member tribunal. The SC recognized the validity of such an appointment under circumstances where consensus could not be reached.

The High Court appointed Sidharth Sharma as the sole arbitrator to adjudicate the disputes between the parties. The High Court also provided liberty to the parties to raise their respective objections before the appointed arbitrator.

Case Title: M/S Twenty-Four Secure Services Pvt. Ltd. Vs M/S Competent Automobiles Company Limited

Citation: 2024 LiveLaw (Del) 672

Case Number: ARB.P. 24/2024

Advocate for the Petitioner: Ms. Manmeet Kaur & Mr. Gurtej Pal Singh, Advocates.

Advocate for the Respondent: Mr. Priyesh Mohan Srivastava, Advocate.

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