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Arbitration

Scope of Section 11(6) for Appointment of Substitute Arbitrator: Difference of Opinion amongst Indian High Courts

Ramit Singh

Introduction and Background

The scheme of Section 11 of the Arbitration and Conciliation Act, 1996 (‘the Act’) gives primacy to the parties to appoint an arbitrator of their choice by mutually deciding upon a procedure to do so. If the parties fail to mutually agree on the appointment of arbitrator, the court under Section 11(6) of the Act has the power to secure the appointment. In case, the arbitrator at the first instance (‘original arbitrator’) has been legally disqualified or is unable to act as an arbitrator, a substitute arbitrator is appointed under Section 15(2) of the Act. However, Indian High Courts (‘High Courts’) have taken different views regarding the process of appointment of substitute arbitrators.

The position is settled by High Courts that parties shall mutually agree on a procedure to decide upon the appointment of a substitute arbitrator where the original arbitrator was appointed by the parties without the intervention of Court. However, there is a cleavage of opinion amongst various High Courts in cases of appointment of substitute arbitrator where the original arbitrator was appointed by the court under Section 11(6) of the Act. One view is that irrespective of the fact that the original arbitrator was appointed by parties or by the Court, the parties are required to mutually agree for the appointment of substitute arbitrator before taking recourse to Section 11(6) of the Act. The other view is that if the court has appointed the original arbitrator, then the parties can straight away approach a court under 11(6) for appointment of substitute arbitrator. In the absence of any authoritative pronouncement of the Indian Supreme Court (‘Supreme Court’) on this issue, the cloud of uncertainty lingers.

This post shall highlight that the view taken by Courts allowing the parties to directly approach the Courts under Section 11(6) for securing the appointment of a substitute arbitrator is not sustainable. The author argues that such a view opined by the courts is against the principle of party autonomy and disregards the prerequisite for invoking Section 11(6) of the Act.

Comment

Parties are free to mutually decide and agree upon the appointment of arbitrator as envisaged under Section 11(2) of the Act. In this regard, pursuant to Sections 11(4) and 11(5) of the Act, one party must serve a notice to the other party with a request to mutually agree on the appointment of arbitrator. If the other party declines to participate in the process of mutually deciding on the appointment of arbitrator, the procedure fails and enables a party to approach the court concerned under Section 11(6) of the Act for securing the appointment of an arbitrator. Recently, the Supreme Court held that the period of limitation for filing a petition under section 11(6) commences only on the refusal of one party to appoint or on expiry of 30 days from the date of issuing notice. Further, the procedure under Section 11(6) is a default procedure and can only be invoked once the parties have failed to arrive at a consensus. Thus, the prerequisite to trigger the jurisdiction of the court under Section 11(6) is the failure of the parties to mutually agree for the appointment of an arbitrator upon the expiry of 30 days’ notice period. Coming to Section 15(2) of the Act which provides that a substitute arbitrator has to be appointed in accordance with the “rules that were applicable to the appointment of the arbitrator being replaced”. In the case of Yashwith Construction P. Ltd vs Simplex Concrete Piles India Ltd, the Supreme Court has interpreted the term  “rules” in Section 15(2) to be the original agreement between the parties for appointment of arbitrator or rules of any Institution under which the dispute was referred to arbitration. In this backdrop, certain judgements of various High Courts are being analysed.

The Bombay and Calcutta High Courts along with some decisions of the Allahabad High Court are of the opinion that parties can directly approach the court under 11(6) of the Act for securing the appointment of a substitute arbitrator, in cases where the original arbitrator was appointed by the court. The reasoning of the Bombay and Calcutta High Courts is that where the appointment  of the original arbitrator was made under Section 11(6), the term ‘rules’ found in Section 15(2) shall include the provision of Section 11(6) and therefore, the parties can straight away approach the court for securing the appointment of substitute arbitrator. Furthermore, the Allahabad High Court in one of its decisions has agreed with the view taken by the Bombay and Calcutta High Courts but with a different reasoning. The Allahabad High Court reasoned that the initial failure of the parties to mutually appoint the original arbitrator upon the expiry of 30 days’ notice would amount to extinguishment of the right of parties to appoint a substitute arbitrator on their own. Thus, the Court opined that a party is not required to mutually agree on the appointment of a substitute  arbitrator and without satisfying the procedure of expiry of 30 days’ notice period, a party can approach the courts under 11(6) of the Act.

The aforesaid reasoning of the High Courts has not taken into account that a court under Section 11(6) is not vested with the jurisdiction to secure appointments without the  expiry of 30 days’ notice period for the parties to mutually appoint an arbitrator. If the court has appointed the original arbitrator, the right of parties to mutually appoint a substitute arbitrator does not cease to exist. It is because the right of parties to exercise their choice to appoint an arbitrator pursuant to Section 11(2) of the Act is not only limited to the stage of appointment of original arbitrator but is applicable even at the stage of appointment of substitute arbitrator. Upon appointment of the original arbitrator, power of the court under Section 11(6) stands exhausted. There is no provision in the Act which contemplates successive exercise of the said power by the court to appoint a substitute arbitrator under the same 11(6) proceedings in which the original arbitrator was appointed. Therefore, upon the mandate of the arbitrator being terminated, a fresh process as prescribed under Section 11(6) will have to be initiated. Even the pragmatic approach also supports this view that once an arbitrator is appointed by the court, the petition under 11(6) of the Act would stand disposed of. Later, if a substitute arbitrator has to be appointed by the court, a fresh petition under 11(6) must be instituted which has to meet the requirement for invoking the jurisdiction of 11(6) which is the expiry of 30 days’ notice. The procedural requirement to set off Section 11(6) cannot be rendered illusory at the stage of appointment of substitute arbitrator. Even if the term “rules” under Section 15(2) include the provision of Section 11(6), the necessary requirement to invoke 11(6) cannot be circumvented. In this regard, the procedural requirement of expiry of 30 days’ notice to trigger the jurisdiction of courts under Section 11(6) cannot differ for a petition which has been filed for appointment of original arbitrator and for appointment of substitute arbitrator. The Act does not create a difference and so should not the Courts.

On the other hand, the Allahabad High Court in another decision has opined that the ‘rules’ under Section 15(2) would mean the original procedure adopted by the parties for appointing an arbitrator and therefore, the parties are entitled to mutually appoint a substitute arbitrator, even if the original arbitrator was appointed by the Court.  This approach of the Court is in consonance with the principles of party autonomy and minimal intervention of the court as it enables the parties to appoint a substitute arbitrator of their choice. Moreover, this approach does not violate the procedure for invoking Section 11(6) of the Act and makes it necessary for a party to approach the court under 11(6) only after the expiry of 30 days’ notice period. In fact, this view is in concert with the decision of the Supreme Court wherein it was held that period of limitation for a 11(6) petition starts after the expiry of 30 days’ notice period as the cause of action for invoking Section 11(6) commences after the expiry of 30 days’ notice period.

Conclusion

Certain decisions of various High Courts in support of approaching the courts straight-away under Section 11(6) without expiry of 30 days’ creates an artificial difference between one category of petitions under 11(6) for appointment of original arbitrator and the other category  of petitions for appointment of substitute arbitrator. This would mean that a petition under 11(6) can be filed without, actually, having a cause of action as no notice is required to be served upon the other party for appointing an arbitrator. Courts must not interpret the purport of sections 11(6) and 15(2) in a manner which takes away the choice of parties to appoint a substitute arbitrator in cases where the original arbitrator was appointed under Section 11(6) of the Act. The intention of the courts must be to confer maximum autonomy to the parties and any interpretation which results in eviscerating such autonomy cannot be sustained. It is about time that the Supreme Court settles the issue by upholding party autonomy.

The author is a 4th-year BA.LLB student at Institute of Law, Nirma University, Ahmedabad.

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