Justifiable Doubts Regarding Arbitrator's Independence Must Be Raised Under Sec. 13 Only, Bombay HC Rejects Section 14(2) Petition By Solaris Developers

Brief Facts:

Solaris Developers Pvt. Ltd. (“Petitioner”) entered into a Development Agreement with the Supervising Staff of Bhagyashree Co-operative Housing Society (“Respondent”). Pursuant to the agreement, an arbitral tribunal headed by sole arbitrator Ms. Seema Sarnaik (“Sole Arbitrator”) was constituted by the Bombay High Court. She forwarded a statement of disclosure to the parties. However, allegedly, she failed to disclose her family relationship with one Mr Harshad Tirodkar, who happened to be the Secretary of the Respondent. She also failed to disclose her close relationship with the party of the advocates for the Respondent. During the arbitral proceedings, the Petitioner felt that the Sole Arbitrator acted unfairly and partially in favour of the Respondent. Feeling aggrieved, the Petitioner filed a petition under Section 14(2) and Section 15(2) of the Arbitration and Conciliation Act, 1996 (“the Act”) requesting for the termination of the Sole Arbitrator on account of her being closely associated with the parties and requesting the court to appoint a replacement arbitrator.

Contentions of the Respondent:

The Respondent raised preliminary objections and challenged the maintainability of the proceedings. It contended that the appointment of an arbitrator based on justiciable doubts regarding her independence and impartiality can only be challenged under the procedure given in Section 13 of the Act. The Act prescribes a specific mechanism and the Petitioner failed to follow that.

Observations of the Court:

The bench observed that the proposed arbitrator is under an obligation to disclose the existence of any sort of relationship or interest in the matter or with the parties under Section 12 of the Act as impartiality and independence are the hallmark of any arbitration process. The bench also perused Section 13 of the Act which provides the procedure for a challenge and noted that there are only two grounds to challenge the appointment of an arbitrator: (1) if the circumstances exist that give rise to justifiable doubt as to his independence and impartiality and; (2) he does not possess the qualifications agreed to by the parties.

However, the petitioner tried to bring the case within the ambit of Section 14(a) which provides termination of an arbitrator's mandate and his substitution, if he becomes de jure or de facto unable to perform his functions. To bring this claim successfully, the petitioner must rely on entries 9 and 10 of the 7th schedule which relate to the instances when the proposed arbitrator has a “close family relationship” or is a “close family member” of one of the parties. For the purpose of the act, “close family member” refers to a spouse, sibling, child, parent or life partner.

The bench held that the Secretary of the respondent did not fall within the ambit of “close family members” of the Sole Arbitrator. Therefore, the Sole Arbitrator could not be declared de jure ineligible to discharge her functions. Consequently, it was held that the Petitioner could not succeed with a claim under Section 14(2). Instead, it should have filed a petition under Section 13 of the Act. Resultantly, the bench dismissed the petition and set the Petitioner at liberty to initiate appropriate proceedings.

Case Title: Solaris Developers Pvt. Ltd. vs State Bank of India, Supervising Staff Bhagyashree Co-operative Housing Society Ltd.

Case No.: Arbitration Petition (L) No. 1359 of 2024

Advocate for the Petitioner: Mr. Anshul Anjarlekar and Ms. Asmita N. Rajbhar

Advocate for the Respondent: Mr Prashant Chawan, Mr Yashodhan Divekar, Mr Ravindra Chile and Mr Rohan Karande

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