Appointment Of Arbitrator Not Unilateral If Consent Of Non-Signatory Not Taken: Delhi High Court

The bench of Justice C. Hari Shankar, while hearing a Section 14 petition challenging the tribunal's jurisdiction, has held that the appointment of an arbitrator without the consent of a non-signatory would not be an unilateral appointment. The requirement to reach a consensus for the appointment of an arbitrator under Section 21 applies to the parties to the arbitration agreement and not a non-signatory who is included in the arbitral proceedings.

Facts:

The petitioner, Yves Saint Laurent (YSL), entered into a Franchise Agreement (FA) with Respondent 2 Beverly Luxury Brands Ltd (Beverly). The FA conferred exclusive jurisdiction to the commercial courts in Paris to adjudicate any dispute arising between the parties. Respondent 1 Brompton Lifestyle Brands Pvt Ltd (Brompton) entered into a Sub-Franchise Agreement (SFA) with Beverly on 2 July 2019 without the petitioner's consent, and the petitioner was also not a signatory to the SFA. The petitioner terminated the FA on 8 August 2021; subsequently, Beverly terminated the SFA. Brompton sent a notice dated 22 February 2022 to Beverly and the petitioner under Section 21 of the Arbitration Act, invoking an arbitration clause in the SFA and proposing to refer disputes that arose between Brompton, on one hand, and petitioner and Beverly, on the other, to arbitration.

The arbitrator vide order dated 23 July 2022 communicated to the parties he had entered on reference. The petitioner wrote to Beverly on 28 September 2022, stating that they were unaware of the SFA before receiving the Section 21 notice. Furthermore, Beverly appointed the arbitrator unilaterally, and the petitioner did not consent to the appointment. On 28 October 2022, the petitioner emailed the arbitrator stating that he was unilaterally appointed with the petitioner's consent. The petitioner then filed a Section 16 application on 26 November 2022, which was dismissed by the tribunal, vide order dated 8 April 2023

The present petition has been filed under Section 14, read with Section `12(5) of the Arbitration Act, and the petitioner seeks only the termination of the mandate of the learned arbitrator.

Submissions by the Parties:

The petitioner made the following opening submissions:

• As the consent of the petitioner to join the arbitral proceedings was not taken, the learned arbitrator was not competent, as the said appointment, with regard to the petitioner, was unilateral.
• Non-signatories to the arbitration agreement can be included in the arbitral proceedings. However, none of the five definitive tests envisaged in ONGC Ltd v. Discovery Enterprises Pvt Ltd, required to be satisfied for the impleadment to be valid, were satisfied in the present case.

The respondent made the following submissions:

• A challenge to the arbitrator's jurisdiction cannot be raised at a much-belated stage.
• A petition seeking termination of the arbitrator's mandate without a prayer for an appointment of a substitute Arbitrator is not maintainable.

The petitioner made the following submissions in rejoinder:

• No Section 21 notice was issued to the petitioner by Brompton. If the parties could not mutually agree on the arbitrator's appointment, either party had to approach the Court under Section 11(5) or Section 11(6). The unilateral appointment was illegal. If the arbitrator was appointed unilaterally, they would be de jure incapable of adjudicating the dispute.
• Section 14(2) allows either of the parties to file a petition seeking termination of the arbitrator's mandate in light of any event regarding the applicability of any of the grounds under Section 14(1). There is no inflexible principle preventing a party from merely seeking the termination of the arbitrator's mandate.
• By virtue of Section 15(2), the substitute arbitrator would be appointed according to the rules applicable to the appointment of the previous arbitration. Without prejudice, in the present case, the Supreme Court has to appoint the arbitrator as one of the parties is located abroad, and the nature of arbitration is International Commercial Arbitration.

Analysis of the Court:

The Bench observed that the language of Section 21 of the Arbitration Act envisages an arbitration agreement between the parties to appoint an arbitrator. The term parties, as defined under Section 2(1)(h) of the Act, refers to "a party to an arbitration agreement." The requirement to reach a consensus for the appointment of an arbitrator under Section 21 applies to the parties to the arbitration agreement and not a non-signatory who is included in the proceedings. The petitioner was not a party to the arbitration agreement in SFA between Brompton and Beverly. Therefore, the present petition erroneous in treating the arbitrator's appointment as unilateral because the petitioner did not consent to the said appointment. The principle of consensus ad idem, concerning the reference of the dispute to arbitration and appointment of an arbitrator, applies solely to the parties to the arbitration agreement and does not extend to a non-signatory, impleaded in the arbitral proceedings. Paragraph 73 of Chloro Controls India Pvt Ltd v. Severn Trent Water Purification Inc., clearly held that the consent of a non-signatory to be added in the arbitral proceedings is not required.

The Bench further observed that the arbitrator's appointment does not become unilateral merely because the petitioner's consent was not taken, as such consent was not required beforehand. If the petitioner was illegally made a party to the arbitral proceedings, the petitioner would be entitled to be deleted from the proceedings; the arbitrator, on the other hand, cannot be said to be rendered de jure incapable of adjudicating the dispute. The presence of parties in arbitral proceedings does not curtail the ability of the arbitrator to adjudicate the dispute. A case under Section 14(2) read with Section 14(1)(a) was not made out to terminate the mandate of the arbitrator.

Therefore, the Court dismissed the petition.

Case Title: Yves Saint Laurent v. Brompton Lifestyle Brands Private Limited & Anr.

Citation: 2024 LiveLaw (Del) 1088

Case Number: O.M.P. (T) (COMM.) 29/2023

Counsel for the Petitioner: Mr. Akhil Sibal, Senior Advocate with Mr. Aseem Chaturvedi, Mr. Nirupam Lodha, Ms. Rashika Bajpai, Mr. Kingshuk Banerjee, Mr. Shivank Diddi, Mr. Arsh Alok, and Mr. Gautam Wadhwa, Advocates.

Counsel for the Respondent: Mr. Gaurav Gupta, Mr. Nikhil Kohli, and Ms. Akshaya Ganpath, Advocates for R-I

Click Here To Read/Download Order Or Judgment