Substitute Co-Arbitrator Cannot Be Appointed Under Section 15(2) Of Arbitration Act After Mandate Termination By Operation of Law: Gujarat High Court

The Gujarat High Court has ruled that a substitute Co-Arbitrator cannot be appointed under Section 15(2) of the Arbitration and Conciliation Act, 1996 (A&C Act) when an arbitrator's mandate is terminated by the operation of law.

Chief Justice Sunita Agarwal presiding over the case, stated, "As discussed above, this is not a case of withdrawal from the office by the Arbitrator, but rather a termination of the arbitrator's mandate by operation of law. Consequently, the petitioner's counsel's arguments for the interpretation of Section 15(2) of the Arbitration Act, 1996, to appoint a substitute co-arbitrator by invoking Clause 11.12 of the Agreement, must be rejected."

The above observation was made in a petition filed by a Limited Liability Partnership (LLP) seeking the appointment of a co-arbitrator on behalf of a private company in ongoing arbitration proceedings between the parties.

The petitioner LLP and the respondent company were parties to a Share Purchase and Subscription Agreement (SPA) and a Shareholders Agreement (SHA). A dispute arose between them, prompting the petitioner to send a notice invoking the arbitration/dispute resolution clause. The notice nominated a mediator and requested the respondent to appoint its nominee mediator within 15 days to proceed with mediation regarding the disputes arising from the agreements.

The notice also specified that if the parties failed to resolve the dispute through mediation, the petitioner would nominate a sole arbitrator to adjudicate the dispute. If the respondent did not agree to the petitioner's nominee as the sole arbitrator, they were to appoint their co-arbitrator.

Unable to agree on the appointment of an arbitrator, the petitioner approached the High Court under Section 11 of the Arbitration and Conciliation Act (A&C Act) seeking the appointment of an arbitrator. The High Court, through an order, appointed a sole arbitrator to adjudicate the dispute, and the Arbitral Tribunal commenced proceedings.

The petitioner filed an application under Section 17 of the A&C Act seeking interim relief, to which the respondent filed a statement of objection. The Tribunal partly allowed the application, and the order was challenged under Section 34 of the A&C Act before the Commercial Court. Additionally, the petitioner filed another application under Section 16, challenging the respondent's filing of counterclaims. The Tribunal reserved its order, but no further proceedings were held.

The Court stated, “In any case, by mere passing of the Order dated 06.11.2023, the present case cannot be treated as the case of termination of mandate of the arbitrator by withdrawal from his office under Section 14(1)(b) of the Act, for the simple reason that with the expiry of the mandate on 24.10.2023, the arbitrator was not holding the office on the date of passing of the said order and, as such, there is no question of application of Section 15 of the Act 1996, in the facts of the instant case.”

The Court further noted that since the parties did not reach a consensus on extending the mandate of the Arbitral Tribunal under Sub-Section (3) of Section 29A, an option for any party was to seek the Court's intervention to extend the time.

Additionally, the Court reported that when asked whether the petitioner would prefer to move an application under Section 29A(4) of the Act, 1996 or agree to the Court appointing an arbitrator, the petitioner's counsel insisted on the appointment of only a co-arbitrator by the Court to form an arbitration panel, including the petitioner's nominated arbitrator. The petitioner was not agreeable to any other proposition for the appointment of an arbitrator.

Consequently, the Court observed it had no option but to dismiss the petition, as the case did not fall under Section 15(2) of the Act 1996, and no substitute co-arbitrator could be appointed as claimed by the petitioner.

The Court concluded that since no application under Section 29A had been moved by any party to the arbitration proceedings, the petition could not be treated as invoking Section 15(2) of the Arbitration Act 1996 for the appointment of a substitute arbitrator. This conclusion was based on the Order dated 06.11.2023, in which the arbitrator withdrew from office by invoking Section 14(1)(b) of the Act 1996.

Accordingly, the High Court dismissed the petition.

Case Title- C2R Projects LLP v. Kinetix Solutions Private Limited & Ors.

LL Citation: 2024 LiveLaw (Guj) 79

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