Termination Of Arbitrator's Mandate Doesn't Equate To Termination Of Arbitral Proceedings: Delhi High Court

Brief Facts:

The matter pertained to disputes between the Petitioner and Respondent which arose from agreements pertaining to the sale, installation, and services relating to Smart Learn Classes. Following the termination of these agreements, outstanding dues became a contentious issue. The Petitioner sent multiple emails which were followed by a final warning letter to address the outstanding payments. Later, a "Full and Final Settlement of Dues and Hardware" letter was sent to the Respondent indicating the intention to terminate the contract and proposing settlement terms. Despite these communications, the Respondent remained unresponsive, which prompted the Petitioner to issue a legal notice and a reminder letter.

Later, the Petitioner invoked arbitration under Section 21 of the Arbitration and Conciliation Act, 1996 per clause 13.1 of the agreement and sent a notice to Respondent. Subsequently, a Sole Arbitrator was appointed, and the first procedural hearing. The arbitration hearings took place from 14th November 2018 to 25th February 2020, but the cross-examination of the Petitioner was deferred due to the nationwide lockdown imposed thereafter. Attempts to resume the proceedings failed for various reasons. Later, the Petitioner approached the Delhi High Court (“High. Court”) and filed a petition under Section 14 read with Section 15 of the Arbitration Act, seeking the substitution of the learned Sole Arbitrator. The Petitioner argued that any unilateral appointment was invalid.

The Respondent argued that the petition was barred due to being filed beyond the permissible time period and argued that pleadings were completed before the Sole Arbitrator in 2019 and the last hearing date was on 25th February 2020, with no subsequent steps taken by the petitioner until 2024.

Observations by the High Court:

The High Court referred to Section 14 and Section 15 of the Arbitration Act and noted that these sections deal with the circumstances in which an arbitrator becomes unable to perform their duties and the procedures for substituting an arbitrator to ensure the continuation of arbitration proceedings. Section 14 specifies conditions such as an arbitrator becoming de jure or de facto unable to perform their functions, failing to act without undue delay, withdrawing from office, or the parties agreeing to terminate their mandate, leading to the termination of the arbitrator's mandate. Section 15 facilitates the appointment of a substitute arbitrator, allowing the arbitration to proceed from where the original arbitrator left off.

The High Court referred to the decision of the Supreme Court in Religare Finvest Limited v. Widescreen Holdings Private Limited and Others and held that the termination of an arbitrator's mandate does not equate to the termination of the arbitral proceedings. Rather, it allows for the appointment of a substitute arbitrator to continue the proceedings. It held that the termination of an arbitrator's mandate, due to an inability to act within a specified period, does not terminate the arbitration proceedings themselves. The Supreme Court in SREI Infrastructure Finance Limited v. Tuff Drilling Private Limited further highlighted that while the termination of arbitral proceedings ends the proceedings entirely, the termination of an arbitrator's mandate does not, thus permitting the appointment of a substitute arbitrator.

The High Court noted that the Sole Arbitrator was appointed on 26th October 2018, and the Statement of Defence was filed on 26th September 2019 which made the completion of pleadings and commencing the 12-month period for the arbitration's conclusion. However, due to the COVID-19 pandemic, the proceedings were halted, and subsequent attempts to resume them were unsuccessful as the Sole Arbitrator became non-responsive. The High Court noted that while the arbitral proceedings were not terminated, the Sole Arbitrator's inability to perform necessitated the appointment of a substitute under Sections 14 and 15.

Consequently, the High Court appointed Ms. Zubeda Begum as the new arbitrator, with proceedings to be conducted under the Delhi International Arbitration Centre (DIAC) and in accordance with DIAC Rules.

Case Title: Extramarks Education India Pvt. Ltd Vs Saraswati Shishu Mandir

Citation: 2024 LiveLaw (Del) 653

Case Number: O.M.P. (T) (COMM.) 13/2024

Advocate for the Petitioner: Mr. Zeeshan Hashmi and Mr. Ankit Parashar

Advocate for the Respondent: Mr. Vivek Sharma

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