High Court Cannot Terminate The Mandate Of Arbitrator In Application Under Section 11(6) Of Arbitration Act. : Supreme Court

The Supreme Court observed that a dispute/controversy on the mandate of the arbitrator being terminated on the ground mentioned in section 14(1)(a) of the Arbitration and Conciliation Act cannot be decided on an application filed under section 11(6) of the Act.

Such a dispute has to be raised before the "court", defined under section 2(e) of the Act.

In this case, the Madhya Pradesh High Court in exercise of powers under section 11(6) of the Act terminated the mandate of sole Arbitrator appointed by the parties themselves. The High Court also appointed a fresh Arbitrator on the ground that the mandate of the sole Arbitrator stood terminated in view of section 14(1)(a) of the Act. It was held that there was undue and unreasonable delay in proceeding with the arbitration proceeding by the Sole Arbitrator.

Before the Apex Court, the appellant contended that where an Arbitrator was already appointed by the parties themselves, subsequently, no application under section 11(6) was maintainable either to terminate the mandate of the sole Arbitrator and/or to substitute the Arbitrator. The respondent, supporting the High Court order contended that once it is found that the arbitrator is unable to perform his functions due to eventualities mentioned in section 14(1), there shall be an automatic termination of the mandate of the arbitrator and he shall be substituted by another arbitrator.

Thus, one of the issues raised in this appeal was whether, in exercise of powers under subsection (6) of section 11 of the Act, 1996, the High Court can terminate the mandate of the sole arbitrator and substitute the arbitrator in view of section 14(1)(a) of the Act, 1996 on the ground that he has failed to act without undue delay ?

The bench noted that the following provision deals with termination of the mandate of the arbitrator and/or termination of the arbitral proceedings.

1. Section 13 provides that subject to sub­section (4), the parties are free to agree on a procedure for challenging an arbitrator and failing any agreement on a procedure for challenging an arbitrator, a party who intends to challenge an arbitration shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in subsection (3) of section 12, send a written statement of the reasons for the challenge to the arbitral tribunal. As per sub­section (3) of section 13, unless the arbitrator challenged under sub­section (2) withdraws from his office or the other party agrees to the challenge, it is for the arbitral tribunal to decide on the challenge. If a challenge to the arbitrator is not successful in that case, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award and when an arbitral award is made under sub­section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34 of the Act, 1996. Therefore, as per section 13 of the Act, the challenge to the arbitrator shall be made before the arbitral tribunal itself. However, section 13 of the Act, 1996 shall be applicable only in a case where the arbitrator is challenged on the grounds mentioned in section 12 of the Act, 1996.
2. Section 14 of the Act, 1996 provides that the mandate of the arbitrator shall terminate and he shall be substituted by another arbitrator in case of any eventuality mentioned in section 14(1)(a). As per subsection (2) of section 14, if a controversy remains concerning any of the grounds referred to in clause (a) of 24 sub­section (1), a party may, apply to the "court" to decide on the termination of the mandate
3. Section 15 provides other grounds for termination of the mandate of the arbitrator. It provides that in addition to the circumstances referred to in section 13 or section 14, the mandate of an arbitrator shall terminate (a) where he withdraws from office for any reason; or (b) by or pursuant to an agreement of the parties.

The bench made the following observations regarding the forum available to challenge under each of the above grounds

Ground under Section 12

If the challenge to the arbitrator is made on any of the grounds mentioned in section 12 of the Act, the party aggrieved has to submit an appropriate application before the Arbitral Tribunal itself.

Ground under Section 14(1)(a)

However, in case of any of the eventualities mentioned in section 14(1)(a) of the Act, 1996 and the mandate of the arbitrator is sought to be terminated on the ground that the sole arbitrator has become de jure and/or de facto unable to perform his functions or for other reasons fails to act without undue delay, the aggrieved party has to approach the concerned "court" as defined under section 2(e) of the Act, 1996. The concerned court has to adjudicate on whether, in fact, the sole arbitrator/arbitrators has/have become de jure and de facto unable to perform his/their functions or for other reasons he fails to act without undue delay. The reason why such a dispute is to be raised before the court is that eventualities mentioned in section 14(1)(a) can be said to be a disqualification of the sole arbitrator and therefore, such a dispute/controversy will have to be adjudicated before the concerned court as provided under section 14(2) of the Act, 1996.

Hence, whenever there is a dispute and/or controversy that the mandate of the arbitrator is to be terminated on the grounds mentioned in section 14(1)(a), such a controversy/dispute has to be raised before the concerned "court" only and after the decision by the concerned "court" as defined under section 2(e) of the Act, 1996 and ultimately it is held that the mandate of the arbitrator is terminated, thereafter, the arbitrator is to be substituted accordingly, that too, according to the rules that were applicable to the initial appointment of the arbitrator. Therefore, normally and generally, the same procedure is required to be followed which was followed at the time of appointment of the sole arbitrator whose mandate is terminated and/or who is replaced.

Ground under Section 15(1)(a)  

So far as the termination of the mandate of the arbitrator and/or termination of the proceedings mentioned in other provisions like in section 15(1)(a) where he withdraws from office for any reason; or (b) by or pursuant to an agreement of the parties, the dispute need not be raised before the concerned court. For example, where the sole arbitrator himself withdraws from office for any reason or when both the parties agree to terminate the mandate of the arbitrator and for substitution of the arbitrator, thereafter, there is no further controversy as either the sole arbitrator himself has withdrawn from office and/or the parties themselves have agreed to terminate the mandate of the arbitrator and to substitute 27 the arbitrator. Thus, there is no question of raising such a dispute before the court.

While allowing the appeal, the bench answered the above issues as follows:

1.  Once the dispute is referred to arbitration and the sole arbitrator is appointed by the parties by mutual consent and the arbitrator/arbitrators is/are so appointed, the arbitration agreement cannot be invoked for the second time;
2. In a case where there is a dispute/controversy on the mandate of the arbitrator being terminated on the ground mentioned in section 14(1)(a), such a dispute has to be raised before the "court", defined under section 2(e) of the Act, 1996 and such a dispute cannot be decided on an application filed under section 11(6) of the Act, 1996.

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