Named Arbitrator Cannot Be Replaced Unless There Is Evidence Of Partiality Or Bias Against Them: Andhra Pradesh HC

Brief Facts:

M/s. Kranthi Grand DKNV Hospitalities (Applicant) entered into a Sub-Lease/Agreement with respondent No.1 – M/s. Manasa Estates and Hospitality Pvt. Ltd., who was a lessee of a property with a right of creating a Sub-Lease in favour of third parties. The Sub-Lease was taken to run a hotel from the premises in question, for a period of eight years.

The applicant argued that an amount of Rs. 30 lakhs has been invested in renovating the building to make it suitable for running a hotel or restaurant. However, the respondent started interfering into the peaceful possession of the applicant even though the applicant was entitled to remain in possession till 2026 as per the lease deed. The respondents forcibly occupied the property in violation of the terms and conditions of the lease.

The Applicant contended that it served a notice upon the respondents invoking the arbitration clause in which name of arbitrator other than the named arbitrator was proposed to which the respondents did not give their consent. Therefore, the present application under section 11(6) of the Arbitration and Conciliation Act, 1996 (Arbitration Act) seeking appointment of an independent arbitrator has been filed.

Observations:

The court observed that the explanation given by the applicant as to why the arbitrator other than the nominated arbitrator is required to be appointed is very casual. No reasons have been furnished whether the named arbitrator falls any of the ineligibilities prescribed under section 12(5) of the Arbitration Act.

The Supreme Court in Indian Oil Corporation Limited and others vs. Raja Transport Private Limited (2009) held that the appointment of the named arbitrator in the agreement is a rule and appointment of the arbitrator other than the named arbitrator should be treated as an exception.

It held that “referring the disputes to the named arbitrator shall be the rule. The Chief Justice or his designate will have to merely reiterate the arbitration agreement by referring the parties to the named arbitrator or named Arbitral Tribunal. Ignoring the named arbitrator/Arbitral Tribunal and nominating an independent arbitrator shall be the exception to the rule, to be resorted for valid reasons.”

Based on the above, the court observed that no material has been placed by the applicant to show that the named arbitrator will not act in an impartial manner.

The Supreme Court in Indian Oil Corporation Limited (supra) also held that a party to the contract cannot claim the benefit of arbitration under the arbitration clause, but ignore the appointment procedure relating to the named arbitrator contained in the arbitration clause.

Accordingly, the present application was dismissed.

Case Title: M/s. Kranthi Grand DKNV Hospitalities and another Vs. M/s. Manasa Estates and Hospitality Pvt. Ltd. and 2 others

Case Number:ARBITRATION APPLICATION NO: 62 of 2023

Judgment Date: 20/02/2025

Advocate for Applicant: Mr. Dheera Kanishka

Advocate for Respondent: Mr. V. V. Ravi Prasad

Click Here To Read/Download The Order