Supreme Court Clarifies Termination of Arbitrator Mandate Under Section 14 of the Arbitration Act: Swadesh Kumar Agarwal vs. Dinesh Kumar Agarwal (2022)

Date of the Judgment: May 5, 2022

Citation: 2022 INSC 427

Judges: M. R. Shah, J. and B.V. Nagarathna, J.

Can a High Court, in an application under Section 11(6) of the Arbitration and Conciliation Act, 1996, terminate the mandate of an arbitrator appointed by the parties themselves? The Supreme Court of India addressed this crucial question in a recent judgment, clarifying the scope of Section 14 of the Arbitration and Conciliation Act, 1996, and its interplay with Section 11(6). The court held that the High Court cannot terminate the mandate of the arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, when the arbitrator was appointed by the parties themselves. The bench comprised Justices M. R. Shah and B.V. Nagarathna.

Case Background

The dispute arose from a family matter concerning the partition of properties. The parties involved decided to resolve their differences through arbitration and appointed a sole arbitrator on August 20, 2008. The arbitrator scheduled a hearing for March 14, 2009, to address pending applications. At the parties’ request, the hearing was adjourned to March 30, 2009. However, no proceedings occurred on this date as the arbitrator was unavailable. Subsequently, on July 11, 2009, some of the parties revoked the arbitrator’s mandate, citing delays. This led to applications being filed before the District Court under Section 14(1)(a) of the Arbitration and Conciliation Act, 1996, seeking the termination of the arbitrator’s mandate due to delays in concluding the arbitration proceedings. The appellant filed an application under Order VII Rule 11 of the Code of Civil Procedure (CPC) to dismiss the Section 14 applications, arguing that there was no delay on the arbitrator’s part. The Trial Court dismissed this application on July 15, 2010.

Timeline

Course of Proceedings

The appellant, aggrieved by the Trial Court’s order, filed writ petitions before the High Court of Madhya Pradesh. While these petitions were pending, one of the parties filed an arbitration case under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking to terminate the arbitrator’s mandate and appoint a new one. The High Court allowed this case, holding that the arbitrator’s mandate was terminated under Section 14(1)(a) of the Act due to undue delay. The High Court also dismissed the appellant’s writ petitions, upholding the Trial Court’s decision. The appellant then appealed to the Supreme Court.

Legal Framework

The Supreme Court examined the following key provisions of the Arbitration and Conciliation Act, 1996:

• Section 11: Deals with the appointment of arbitrators. Sub-section (2) allows parties to agree on a procedure for appointing arbitrators. Sub-section (5) applies when parties fail to agree on an arbitrator in a sole arbitrator scenario. Sub-section (6) applies when there is a written agreement on the appointment procedure and a party fails to act as per the procedure.
• Section 12: Specifies the grounds for challenging an arbitrator, including circumstances that raise justifiable doubts about their independence or impartiality.
• Section 13: Outlines the procedure for challenging an arbitrator, which is typically done before the arbitral tribunal itself.
• Section 14: Addresses the termination of an arbitrator’s mandate due to their inability to perform their functions or failure to act without undue delay. It states that “The mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, if— (a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay”. It also specifies that if a controversy arises regarding the grounds for termination, a party may apply to the “Court” to decide on the matter.
• Section 15: Provides additional grounds for the termination of an arbitrator’s mandate, such as withdrawal from office or agreement by the parties.
• Section 25: Deals with the default of a party. It states that unless otherwise agreed by the parties, where, without showing sufficient cause,—(a) the claimant fails to communicate his statement of claim in accordance with sub-section (1) of section 23, the arbitral tribunal shall terminate the proceedings.
• Section 30: Addresses settlement during arbitration proceedings.
• Section 32: Deals with the termination of proceedings. It states that the arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral tribunal under sub-section (2).
• Section 2(e): Defines “Court” as the principal Civil Court of original jurisdiction in a district or the High Court in its original civil jurisdiction.

Arguments

Appellant’s Submissions:

• The High Court erred in terminating the arbitrator’s mandate under Section 14(1)(a) of the Arbitration and Conciliation Act, 1996, through an application under Section 11(6).
• Once an arbitrator is appointed by the parties, an application under Section 11(6) is not maintainable to terminate the arbitrator’s mandate or substitute the arbitrator.
• The mandate of an arbitrator can only be terminated as per the provisions of the Arbitration and Conciliation Act, 1996, specifically Sections 13, 14, 15, 25(a), 30, and 32.
• In case of eventualities under Section 14(1)(a), the remedy is to approach the “court” as defined under Section 2(e) of the Act.
• The respondents had already filed applications under Section 14(2) of the Act, which were pending before the concerned court when the application under Section 11(6) was filed.
• There is a distinction between Section 11(5) and Section 11(6) of the Act.
• Section 11(6) is not applicable in the absence of a written contract containing an arbitration agreement.
• There was no undue delay by the arbitrator to justify termination of his mandate.
• Relied on Antrix Corporation Limited v. Devas Multimedia Private Ltd. [(2014) 11 SCC 560] and S.P. Singla Constructions Private Limited v. State of Himachal Pradesh [(2019) 2 SCC 488] to argue that once arbitration is invoked and an arbitrator is appointed, a subsequent application under Section 11(6) is not maintainable.

Respondent’s Submissions:

• The arbitrator’s mandate was rightly terminated under Section 14(1)(a) due to undue delay.
• Section 14(1) uses the word “shall,” indicating that the mandate of an arbitrator “shall” terminate if they fail to act without undue delay.
• Once it is found that the arbitrator is unable to perform their functions due to reasons in Section 14(1), there is an automatic termination of the mandate, and the arbitrator must be substituted.
• Relied on ACC Limited v. Global Cements Limited [(2012) 7 SCC 71] and Union of India v. Uttar Pradesh State Bridge Corporation Limited [(2015) 2 SCC 52].
• The Trial Court did not err in rejecting the application under Order VII Rule 11 of CPC. Whether there was undue delay is a matter for adjudication and not for rejection at the threshold.
• At the stage of deciding an application under Order VII Rule 11 of CPC, only the averments in the application/plaint are considered, not the defense.
• The original applicants have withdrawn their applications under Section 14(2) of the Act.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the High Court, in exercise of powers under Section 11(6) of the Act, 1996, can terminate the mandate of the sole arbitrator?
2. Whether, in the absence of any written contract containing the arbitration agreement, the application under Section 11(6) of the Act, 1996, would be maintainable?
3. Is there any difference and distinction between sub-section (5) of Section 11 and sub-section (6) of Section 11 of the Act, 1996?
4. Whether the application under sub-section (6) of Section 11 shall be maintainable in a case where the parties themselves appointed a sole arbitrator with mutual consent?
5. Whether, in the facts and circumstances of the case, the High Court was justified in terminating the mandate of the sole arbitrator on the ground that there was undue delay on the part of the sole arbitrator in concluding the arbitration proceedings, which would lead to the termination of his mandate, in an application under Section 11(6) of the Act, 1996?
6. Whether, in the facts and circumstances of the case, the learned Trial Court was justified in dismissing the application submitted by the appellant, submitted to reject the application under Section 14(2) of the Act, 1996, in exercise of powers under Order VII Rule 11 of CPC?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

The Court also considered the following provisions of the Arbitration and Conciliation Act, 1996:

• Section 2(e): Defines “Court” for the purposes of the Act.
• Section 11: Deals with the appointment of arbitrators.
• Section 12: Specifies the grounds for challenging an arbitrator.
• Section 13: Outlines the procedure for challenging an arbitrator.
• Section 14: Addresses the termination of an arbitrator’s mandate.
• Section 15: Provides additional grounds for the termination of an arbitrator’s mandate.
• Section 25: Deals with the default of a party.
• Section 30: Addresses settlement during arbitration proceedings.
• Section 32: Deals with the termination of proceedings.

Judgment

The Supreme Court held that the High Court erred in terminating the mandate of the sole arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996. The Court clarified that:

The court further clarified how each authority was viewed:

• Antrix Corporation Limited v. Devas Multimedia Private Ltd. [(2014) 11 SCC 560]: The court followed this case, holding that once an arbitration agreement is invoked and an arbitrator is appointed, the arbitration agreement cannot be invoked a second time. A challenge to the appointment must be made under Section 13 of the Arbitration and Conciliation Act, 1996.
• S.P. Singla Constructions Private Limited v. State of Himachal Pradesh [(2019) 2 SCC 488]: The court followed this case, reiterating that once an arbitrator is appointed as per the agreement and provisions of law, the arbitration agreement cannot be invoked for a second time.
• ACC Limited v. Global Cements Limited [(2012) 7 SCC 71] and Union of India v. Uttar Pradesh State Bridge Corporation Limited [(2015) 2 SCC 52]: The court distinguished these cases, stating that while they correctly stated the law that in case of any of the eventualities occurring as mentioned in Section 14 and 15 of the Arbitration and Conciliation Act, 1996, the mandate of the arbitrator shall stand terminated, but the issue before the court was different.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to maintain the integrity of the arbitration process and adhere to the statutory framework laid out in the Arbitration and Conciliation Act, 1996. The Court emphasized that once parties have mutually agreed to an arbitration process and appointed an arbitrator, the mechanism for challenging or terminating the arbitrator’s mandate must follow the specific procedures outlined in the Act. The Court underscored that Section 11(6) of the Act is not a tool to bypass the specific provisions of Section 14, which provides for the termination of an arbitrator’s mandate under specific circumstances. The Court’s reasoning was driven by the need to prevent parties from circumventing the statutory scheme and ensuring that disputes related to the arbitrator’s mandate are adjudicated by the appropriate forum as defined in the Act.

Logical Reasoning:

The court rejected the argument that Section 11(6) could be used to terminate the mandate of an arbitrator when the arbitrator was appointed by the parties themselves. The court emphasized that the remedy for termination of the mandate of the arbitrator under Section 14(1)(a) is to approach the “court” as defined under Section 2(e) of the Act. The court also rejected the argument that the High Court could terminate the mandate of the arbitrator under Section 11(6) due to undue delay, stating that such a dispute has to be raised before the court under Section 14(2) of the Act. The court held that the Trial Court was justified in dismissing the application under Order VII Rule 11 of CPC as the issue of delay was a matter of adjudication. The court also held that once an arbitrator is appointed as per the agreement and provisions of law, the arbitration agreement cannot be invoked for a second time.

The Court observed, “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.”

The Court further stated, “Therefore, on a conjoint reading of section 13, 14 and 15 of the Act, 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. 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 Court also noted, “In the present case, the sole arbitrator was appointed by the parties themselves by mutual consent and in the absence of any written contract containing the arbitration agreement. Therefore, application under section 11(6) of the Act, 1996 in absence of any written agreement containing arbitration agreement was not maintainable at all.”

The Supreme Court overturned the High Court’s decision, emphasizing that the correct procedure for terminating an arbitrator’s mandate under Section 14(1)(a) is to approach the designated “court” under Section 2(e) of the Act, and not through an application under Section 11(6). The court also clarified that Section 11(6) applies only when there is a written contract containing an arbitration agreement and the appointment procedure is agreed upon by the parties.

Key Takeaways

• An application under Section 11(6) of the Arbitration and Conciliation Act, 1996, is not maintainable to terminate the mandate of a sole arbitrator appointed by the parties themselves.
• In the absence of a written contract containing an arbitration agreement, an application under Section 11(6) is not maintainable.
• Disputes regarding the termination of an arbitrator’s mandate under Section 14(1)(a) must be raised before the “court” as defined under Section 2(e) of the Act.
• Section 11(5) applies when there is no agreed procedure for appointing an arbitrator, while Section 11(6) applies when there is a written agreement on the appointment procedure.
• Once an arbitrator is appointed as per the agreement and provisions of law, the arbitration agreement cannot be invoked for a second time.

Directions

The Supreme Court directed that the applications filed by the respondents under Section 14(2) of the Act, 1996, before the concerned court shall stand revived. The concerned court was directed to consider the same in accordance with the law and on their own merits, preferably within a period of four months. The court also clarified that if the mandate of the sole arbitrator is terminated, a fresh arbitrator has to be appointed by following the same procedure as before. If the parties do not agree on the name of the sole arbitrator, the aggrieved party may approach the appropriate court for appointment of an arbitrator under Section 11(5) of the Act. If the applications under Section 14(2) of the Act are dismissed, the sole arbitrator shall conclude the arbitration proceedings and declare the award within a period of nine months from the decision of the court under Section 14(2) of the Act, 1996.

Development of Law

The Supreme Court’s judgment clarifies the distinction between Section 11(5) and Section 11(6) of the Arbitration and Conciliation Act, 1996. It also reaffirms that the termination of an arbitrator’s mandate under Section 14(1)(a) must be decided by the “court” as defined under Section 2(e) of the Act and not under Section 11(6). This ruling reinforces the statutory scheme of the Arbitration and Conciliation Act, 1996, and ensures that disputes related to the arbitrator’s mandate are adjudicated by the appropriate forum. This judgment also clarifies that once an arbitrator is appointed as per the agreement and provisions of law, the arbitration agreement cannot be invoked for a second time.

Conclusion

The Supreme Court’s judgment in Swadesh Kumar Agarwal vs. Dinesh Kumar Agarwal clarifies the procedure for terminating the mandate of an arbitrator under the Arbitration and Conciliation Act, 1996. The Court emphasized that an application under Section 11(6) is not the correct mechanism for terminating the mandate of an arbitrator when the arbitrator was appointed by the parties themselves. The Court held that the appropriate forum for such disputes is the “court” as defined under Section 2(e) of the Act, under Section 14(2) of the Act. This ruling reinforces the statutory scheme of the Act and ensures that disputes related to the arbitrator’s mandate are adjudicated by the appropriate forum.