Substitution Of Arbitrator Based On Allegation Of Collusion Can't Be Done Under Section 11 of A& C Act: Telangana High Court

The Single Bench of Justice K. Lakshman held that the allegations regarding any collusion between the specified arbitrator and the opposite party cannot be decided in an application filed under Section 11 of the A&C Act. The Court added that a party cannot seek appointment of a substitute arbitrator on mere allegations of collusion.

The applicant- M/s. Sawera Township India Private Limited, and the respondent- Faisal Bin Tirif, entered into a MOU. The MOU contained an arbitration clause, which provided for a specified arbitrator. After the respondent terminated the MOU, the applicant issued an arbitration notice and nominated an arbitrator, which was disputed by the respondent. The applicant filed an application under Section 11 of the A&C Act before the Telangana High Court seeking appointment of an arbitrator.

The applicant M/s. Sawera Township submitted before the High Court that there was a collusion between the respondents and the arbitrator named in the arbitration clause and hence, the applicant sought the appointment of an independent sole arbitrator to adjudicate the disputes between the parties.

To this, the respondent Faisal Bin Tirif contended that once an arbitrator is named in the arbitration agreement, the specified arbitrator alone shall be appointed as per the terms of the agreement.

Referring to Section 13 of the A&C Act, which provides the procedure to be followed by a party seeking to challenge the appointment of an arbitrator, the Court observed that the challenge against an arbitrator on the grounds of justifiable doubts regarding his independence or impartiality is to be made only before the arbitral tribunal. The Court added that if the challenge is successful, the arbitrator shall withdraw, however, if the challenge is unsuccessful, the arbitral tribunal shall continue the proceedings and shall pass an award. The Bench noted that it is only then that the party challenging the arbitrator may make an application to set aside such an arbitral award under Section 34 of the A&C Act, based on the ground that there were justifiable doubts regarding the arbitrator's independence or impartiality.

The Bench added that since the applicant had agreed on the name of the arbitrator as specified in the arbitration clause, hence, it could not seek the appointment of a substitute arbitrator under Section 11 of the A&C Act.

While holding that no specific averments were made by the applicant regarding the collusion between the specified arbitrator and the respondents, the Court ruled that a party cannot seek appointment of a substitute arbitrator on mere allegations of collusion. The Court added that the allegations regarding any collusion between the specified arbitrator and the opposite party cannot be decided in an application filed under Section 11 of the A&C Act.

"Therefore, the named arbitrator has to be appointed who shall follow the procedure under Section 12 of the Act, 1996 and make the necessary disclosures. If the Applicant feels that such disclosures raise justifiable doubts, it is at liberty to challenge the appointment of the arbitrator under Section 13 of the Act, 1996. As stated above, this Court cannot decide the allegations of collusion under an application filed under Section 11 of the Act, 1996 and Mr. Javeed Mohammed Janjua being the named arbitrator has to be appointed to decide the disputes between the parties."

The Court ruled that the issue whether an arbitrator is biased or is in collusion, or whether the circumstances which give rise to justifiable doubts regarding his independence or impartiality exist, has to be decided by the arbitral tribunal itself under Section 13 of the A&C Act. Hence, the Court disposed of the application and appointed the named arbitrator, as specified in the arbitration clause of the MOU.

Case Title: M/s Sawera Township India Private Limited versus Faisal Bin Tirif

Citation: 2022 LiveLaw (Tel) 87 

Dated: 01.09.2022 (Telangana High Court)

Counsel for the Applicant: Mr. Praveen Vyapari

Counsel for the Respondent: Mrs. Vedula Chitralekha

Click Here To Read/Download Order