Delhi High Court Imposes Costs Of Rs. 50,000 For Unnecessarily Challenging And Questioning Of Arbitrator's Mandate

Brief Facts:

This petition, filed on behalf of Ms. Sarika Chaturvedi, seeks the substitution of an arbitrator following the recusal of the previously appointed arbitrator. Initially, the Court appointed an arbitrator on 8th July 2022, but the appointed arbitrator recused himself from the case on 19th October 2023.

The Petitioner provided a loan of Rs. 10 lakhs to Agarwal Auto Traders, a partnership firm managed by Mr. Mahinder Kumar Agarwal and his wife, Mrs. Uma Agarwal. Despite repeated efforts by the Petitioner to secure repayment, the Respondent did not repay the loan. Thereafter, the Petitioner invoked arbitration under Section 21 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), as per the loan agreement dated 9th December 2016.

The arbitration clause in the agreement specified Mr. H.L. Tiku, Senior Advocate, as the sole arbitrator. Mr. Tiku entered the reference but recused himself due to allegations from the Respondents. Consequently, the Petitioner filed a petition in the Delhi High Court (“High Court”) which led to the appointment of Ms. Warisha Farasat as the new arbitrator. Ms. Farasat entered the reference on 21st July 2022 and initiated proceedings, with the pleadings completed and evidence and cross-examination of the petitioner concluding on 4th March 2023.

However, due to delays and procedural issues, the mandate of the arbitrator needed an extension. The mandate was extended by six months following consent from both parties, but the proceedings continued to face delays. On 6th October 2023, the Respondents raised concerns about the one-year arbitration period and claimed that it should start from the completion of pleadings which led to confusion about the mandate's expiration date. Subsequently, Ms. Farasat decided to withdraw from the case stating repeated delays and lack of cooperation from both parties. In her detailed order, she highlighted the undue delays caused by both parties and their failure to ensure a timely resolution despite her efforts.

Thereafter, the Petitioner approached the High Court for the appointment of a new arbitrator to proceed with the arbitration. She argued that the previous arbitrator's withdrawal was necessitated by the Respondents' conduct and procedural delays.

Observations by the High Court:

The High Court noted that the various orders and emails demonstrated the Arbitrator's frustration and exasperation with the matter. The parties repeatedly sought adjournments, and the Respondent's conduct was notably problematic, aimed at undermining the Arbitrator's position.

The High Court noted that the Arbitrator appointed pursuant to the loan agreement recused himself due to objections from the Respondent. Subsequently, the Respondent continued to challenge the mandate of the new Arbitrator appointed on 8th July 2022. The Arbitrator, on 16th September 2023, clarified the mandate issue, noting the Respondent's consent to extend the Arbitrator's mandate by six months until 7th October 2023. Hence, the High Court held that the email from the Respondent questioning the Arbitrator's mandate was unwarranted.

The High Court held that such attempts to derail and undermine arbitration proceedings deserve stern and stringent action. The Respondent's actions were seen as attempts to challenge the Arbitrator's mandate unnecessarily, thereby creating a stalemate and forcing judicial intervention. The High Court held that such behavior is unacceptable, and arbitrators should not be pressured into recusal. The High Court noted that the Arbitrator is a reputable advocate, and her decision to withdraw was a last resort after being pushed to an extreme situation by the Respondent's conduct.

The High Court held that the Respondent was attempting to overreach and delay the arbitration proceedings. Consequently, the High Court decided that a substitute Arbitrator was not needed, as the current Arbitrator had already made significant progress in the case.

The High Court directed the same Arbitrator to resume the proceedings from the point she recused. The mandate of the Arbitrator was extended until 31st December 2024. Additionally, due to the delays and the Respondent's conduct, the High Court imposed costs of Rs. 50,000 on the Respondent.

Case Title: Ms. Sarika Chaturvedi Vs Agarwal Auto Traders & Ors.

Case Number: O.M.P. (T) (COMM.) 48/2024 & I.A. 29792/2024

Advocate for the Petitioner: Mr. Natwar Rai & Ms. Aliya Parveen

Advocate for the Respondent: Mr. Hemant Chauhan, Advocate

Date of Judgment: 22nd May, 2024