Application Under Section 11(6) Not Maintainable For Appointment Of Arbitrator In Absence Of A Written Agreement Between Parties: Supreme Court

The Bench of Justices M. R. Shah and B.V. Nagarathna held that once the dispute is referred to arbitration and the sole arbitrator is appointed by the parties by mutual consent, the arbitration agreement cannot be invoked for the second time.

A family dispute between the parties for partition of properties was referred to arbitration. Thereafter, the parties to the arbitration proceedings- respondent no. 1 and 3 revoked the mandate of the sole arbitrator vide a letter addressed to the arbitrator. Respondent no. 1 and 3 filed applications under Section 14(1)(a) of the A&C Act before the District Court for terminating the mandate of the sole arbitrator on the ground of delay in concluding the arbitration proceedings. The appellant Swadesh Kumar Agarwal filed an application under Order 7 Rule 11 of CPC for dismissal of the said application filed under Section 14 of A&C Act on the ground that there was no delay on the part of the sole arbitrator.

The District Court dismissed the application filed by the appellant. Against the order of the District Court, the appellant filed a writ petition before the Madhya Pradesh High Court. During the pendency of the application under Section 14(1)(a) before the District Court for terminating the mandate of the sole arbitrator, the respondent no. 1 Dinesh Kumar Agarwal filed an arbitration case before the High Court under Section 11(6) of the A&C Act requesting the termination of the mandate of the sole arbitrator and for appointment of a fresh arbitrator.

The High Court allowed the application filed by the respondent no. 1 and held that there was undue delay on the part of the sole arbitrator in concluding the arbitration proceeding, thus his mandate stood terminated. The High Court also appointed a fresh arbitrator and dismissed the writ petition filed by the appellant against the order of the District Court. The appellant filed an appeal before the Supreme Court against the order of the High Court.

The appellant Swadesh Kumar Agarwal submitted before the Supreme Court that the High Court had erred in terminating the mandate of the arbitrator under Section 14(1)(a) of the A&C Act on an application filed under Section 11(6). The appellant added that where an arbitrator was already appointed by the parties, no application under Section 11(6) was maintainable to terminate the mandate of the arbitrator or to substitute an arbitrator. The appellant averred that the mandate of the arbitrator can be terminated only as per the provisions of the A&C Act.

The appellant averred that in case of the eventualities as mentioned in Section 14(1)(a) to terminate the mandate of the arbitrator, the parties would have to approach the "court" as defined under Section 2(e) of the A&C Act. The appellant contended that applications under Section 14(2) to decide on the termination of the arbitrator's mandate were pending in the District Court at the time when applications under Section 11(6) for appointment of a fresh arbitrator were filed before the High Court.

The appellant contended that as per the law laid down by the Supreme Court in the case of Antrix Corporation Limited versus Devas Multimedia Private Ltd (2013), once the parties have invoked arbitration proceedings and the arbitrator has been appointed, a subsequent application under Section 11(6) is not maintainable.

The appellant averred that in the absence of a written contract containing an arbitration agreement between the parties, Section 11(6) of the A&C Act was not applicable and thus an application under Section 11(6) was not maintainable before the High Court.

The Supreme Court observed that the sole Arbitrator was appointed by the parties themselves by mutual consent and there was no written agreement or contract containing an arbitration clause.

The Court noted that in a case where there is an arbitration agreement between the parties wherein an appointment procedure is agreed upon, Section 11(6) of the A&C Act shall be attracted. Thus, in the case of occurrence of any eventuality as specified under Section 11(6), a party can approach the High Court for appointment of an arbitrator. However, the Court added, Section 11(5) shall be attracted in a case where no procedure for appointment of an arbitrator is agreed upon.

Thus, the Court ruled that while referring the matter for arbitration there need not be any written contract containing an arbitration agreement and the parties may themselves decide to refer the dispute to arbitration by mutual consent. The Court added that in this case, the provisions of Section 11(6) shall not be attracted and an application under Section 11(6) shall not be maintainable.

The Supreme Court held that there is a difference between the arbitrator appointed under Section 11(5) and under Section 11(6) of the A&C Act. The Court thus ruled that since the sole arbitrator was appointed by the parties by mutual consent and in absence of any written contract, therefore, application under Section 11(6) was not maintainable.

"Even otherwise, once the arbitrator was appointed by mutual consent and it was alleged that the mandate of the sole arbitrator stood terminated in view of section 14(1)(a) of the Act, 1996, the application under section 11(6) of the Act, 1996 to terminate the mandate of the arbitrator in view of section 14(1)(a) of the Act shall not be maintainable…. Such a dispute cannot be decided on an application under section 11(6) of the Act and the aggrieved party has to approach the concerned "court" as per sub­section (2) of section 14 of the Act."

The Court ruled that on a conjoint reading of Section 13, 14 and 15 of the A&C Act, if a challenge is made against the arbitrator on the grounds mentioned under Section 12, the party has to submit the appropriate application before the Arbitral Tribunal itself. However, the Court added, if the mandate of the arbitrator is sought to be terminated on the ground that he has become de jure and/or de facto unable to perform his functions or on the ground that he fails to act without undue delay as specified under Section 14(1)(a), the party has to approach the concerned "court" as defined under Section 2(e) of the A&C Act. The Court added that such a dispute cannot be decided on an application filed under Section 11(6).

The Supreme Court thus ruled that when the mandate of the arbitrator is ultimately terminated by the concerned court, only thereafter can the arbitrator be substituted according to the rules that were applicable to the initial appointment of the arbitrator.

The Supreme Court thus held that there is a difference between Section 11(5) and Section 11(6) of the A&C Act and failing any written agreement between the parties on the procedure for appointing an arbitrator (s) under Section 11(2), Section 11(5) of the A&C Act shall be attracted and application for appointment of arbitrator(s) shall be maintainable under Section 11(5) and not under Section 11(6).

The Supreme Court ruled that once the dispute is referred to arbitration and the sole arbitrator is appointed by the parties by mutual consent, the arbitration agreement cannot be invoked for the second time.

The Court held that the application under Section 14(2) was sought to be rejected by the appellant on the ground that there was no undue delay on the part of the arbitrator, which was required to be adjudicated on merits by the court. The Court ruled that at the stage of deciding the application under Order 7 Rule 11 of CPC only the averments and allegations in the application are to be considered and not the defence filed by the opposite party. Thus, the Supreme Court held that the District Court had rightly dismissed the application filed by the appellant under Order 7 Rule 11 of CPC.

The Supreme Court thus quashed the order passed by the High Court and ruled that the dispute as to whether the mandate of the sole arbitrator under Section 14(1)(a) of the A&C Act stands terminated or not has to be considered by the court on an application filed under Section 14(2).

The Court added that if the mandate of the arbitrator is terminated by the concerned court, the parties shall appoint a fresh arbitrator following the same procedure followed earlier. The Court ruled that in case the parties do not agree to the name of the sole arbitrator, the aggrieved party may approach the appropriate court for appointment of an arbitrator under Section 11(5) of the A&C Act.

Case Title: Swadesh Kumar Agarwal versus Dinesh Kumar Agarwal & Ors.

Citation : 2022 LiveLaw (SC) 454

Counsel for the petitioner: Divyakant Lahoti

Counsel for the respondent: Ashok Lalwani for Respondent No. 1 and Rajesh Inamdar for Respondent No. 2

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