Even If Arbitral Award Set Aside For Non-Compliance With Section 12, Parties Can File Fresh Section 11 Application For Arbitrator Appointment: Delhi High Court

The Delhi High Court single bench of Justice Dinesh Kumar Sharma held that mere invalidation or unenforceability of the arbitrator appointment process does not render the entire arbitration clause void. The bench held that even if an arbitration award is set aside due to unilateral appointment and non-compliance with Section 12 of the Arbitration Act, fundamental agreement between the parties to submit their disputes to arbitration remains intact. Therefore, the parties can file a fresh application under Section 11 of the Arbitration Act for arbitrator appointment.

Brief Facts:

The matter pertained to disputes arising out of the franchise agreements, wherein the Petitioner and Respondents agreed to establish "coaching centres" under the names "Aakash Institute / Aakash IIT JEE" and "Aakash Foundations" for school students. The arbitration clauses in these agreements, though not explicitly detailed, were acknowledged by both parties. There were several awards passed by the Arbitrator.

The Respondents contested the awards, leading to the District Court setting aside all the awards. Subsequently, the Petitioner issued fresh notices under S. 21 of the Arbitration and Conciliation Act (“Arbitration Act”), delivered via Speed Post and email. The Respondents denied by the claims made by the Petitioner. Thereafter, the Petitioner approached the Delhi High Court (“High Court”) under Section 11 of the Arbitration Act seeking the appointment of a Sole Arbitrator for adjudication of the disputes.

The Petitioner argued that the Respondents, in response to the S. 21 notice, admitted the existence of the franchise agreements and the arbitration clause, while raising only two objections. Firstly, Respondents claimed that if the Sole Arbitrator's decision is overturned, arbitration is exhausted, and only a civil lawsuit remains. Secondly, the Petition is allegedly time-barred. The Petitioner contended that setting aside the initial award doesn't exhaust the arbitration clause.

Furthermore, the Petitioner's argued that the issue of limitation falls within the Arbitrator's purview, as per the Arbitration Act.

Observations by the High Court:

The primary objection raised by the Respondent was that if an arbitration award is set aside due to unilateral appointment and non-compliance with Section 12 of the Arbitration Act, the Petitioner cannot file a fresh application under section 11 of the Arbitration Act for arbitrator appointment.

The High Court rejected the Respondent's contention that exhaustion of remedies under the arbitration clause prevents seeking re-appointment of the arbitrator. It held that as long as disputes covered by the arbitration agreement remain unresolved, parties are free to invoke arbitration again after an award is set aside. It held that setting aside an award doesn't preclude parties from re-agitating their claims before another arbitral tribunal.

The High Court held even if the procedure for appointing an arbitrator becomes invalid, the core arbitration agreement remains valid and enforceable. Therefore, the High Court appointed Sh. L.K. Gaur, Former Ld. District Judge (Commercial Court) as a sole Arbitrator to adjudicate the disputes between the parties in all the petitions.

Case Title: Aakash Educational Services Ltd Vs M/S Lotus Education & Ors.

Citation: 2024 LiveLaw (Del) 239

Advocate for the Petitioner: Mr. Anunaya Mehta and Mr. Vinayak Thakur,

Advocate for the Respondent: Mr. Amit Kumar Maihan.

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