Recently, the High Court of Himachal Pradesh, in the case of BMD Pvt. Ltd., opined on whether a Petition under Section 11 of the Arbitration & Conciliation Act, 1996 (“the Act”) would be non-maintainable before the Court after filing of an application under Section 13 of the Act to challenge the appointment of an arbitrator.
Indian courts have constantly reiterated that the principle of party autonomy is the brooding and guiding spirit of arbitration.[2] In the instant case, the Court aimed to balance the scope of judicial review on an application under Section 3 of the Act, therein the petitioner prayed for termination of the mandate of the arbitrator and, approached this Court in the instant proceedings, under S. 11 of the Act, praying for appointment of another arbitrator.
Background of the Dispute
The parties of the instant case are embroiled in a web of judicial applications under the Act ensued by their initial association in 2011 for the execution of a hydroelectric project in Himachal Pradesh. The Respondent extended a sum of INR 6 to the Petitioner as an upfront premium which was then followed by a project report. However, in this report, it was found that the proposed plan is technically and financially unviable which prompted the Respondent to seek a refund of the said premium from the Petitioner.
On Petitioner’s continued disregard towards the Respondent’s request for a refund, the Respondent served a legal notice in 2019 indicating that it shall be treated as a notice of initiation of arbitration proceedings (under the terms of the underlying contract) if the upfront premium along is not refunded within 15 days from the date of the said notice.
In 2020, a Section 11 (6) application was filed by the Petitioner to request the appointment of an arbitrator which was then followed by a Section 13 application on the part of the Respondent to challenge the appointment of the arbitrator.
Arguments Posed by the Parties
The Petitioner, arguing in favour of the Sec 11 application, submitted that the unilateral appointment made by the Respondents is invalid in law as the Petitioner had previously informed the Respondent that it is going to approach the Court for the Himachal Pradesh High Court for appointment of the arbitrator.
Whereas the Respondent challenged the maintainability of the Petitioner’s Section 11 application before the Court on the grounds that it has already filed a Section 13(2) application, challenging the appointment of the arbitrator chosen by the Respondent, therefore, it is estopped from filing the said application for appointment of the arbitrator. It further claimed that due to the Petitioner’s lack of response to the Respondent’s arbitration notice, the Petitioner can only challenge the arbitrator under Section 13 of the Act.
Rule
| Section 11 (6) of the Act | Where, under an appointment procedure agreed upon by the parties, a. A party fails to act as required under that procedure; […] A party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointed procedure provides other means for securing the appointment. |
| Section 12 of the Act | Grounds of challenging an appointment and the circumstances in which a party may challenge an arbitrator. |
| Section 13 of the Act | Challenge Procedure – […] (2) Failing any agreement referred in sub-section (1) {it states that the parties are free to agree on a procedure challenging an arbitrator}, a party who intends to challenge an arbitrator, shall, within 15 days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of circumstances referred to in sub-section (3) of Section 12, send a written statement of the reasons for the challenge to the arbitral tribunal. |
Issues Discussed
The Court explained that the Petitioner’s lack of response to the Respondent’s arbitration notice within the stipulated time can be understood as its deemed consent to the appointment of the arbitrator indicated in the said notice by the Respondent.
Relying its understanding upon the precedent set in the SP Singla case[1], the Court is of the opinion that the party which failed to object/respond to the notice of appointment of an arbitrator within 30 days, the party estopped itself from laying a challenge to the appointment of an arbitrator, once it had given deemed consent to the same, by not responding/objecting within the stipulated time.
The terms of the underlying contract expressly provided that the concerned parties shall endeavour to settle any disputes amongst themselves, at the first instance, through mutual negotiations, which shall then be followed by referring the matter to arbitration as per the provisions of the Act.
Relying on the Honourable Supreme Court’s decisions set in the SP Singla Construction case[1] and Swadesh Kumar Agarwal case[2], the Court held that once parties have invoked arbitration proceedings and an arbitrator has been appointed, subsequent applications under Sec. 11(6) of the Act shall not be maintainable considering that it has consented to the arbitrator’s appointment via submission of an application to terminate the arbitrator’s appointment under Sec. 13 of the Act.
After the close perusal in the case of Antrix Corporation Limited v. Devas Multimedia Private Ltd. (2014) 11 SCC 560, and S.P. Singla (supra) the Hon’ble SC held that after the appointment of an Arbitrator is made, the remedy of the aggrieved party is not under Sec. 11(6) but such remedy lies under Sec(s) 12 and 13 of the Arbitration Act. If any party is dissatisfied or aggrieved by the arbitrator's appointment in terms of the agreement by another party/parties, his remedy would be by way of a petition under Section 13 of the Act and, thereafter, filing an application for challenging the award under Sec. 34 of the Act.
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In the instant case, the dispute was referred to arbitration after making due efforts to settle through mutual negotiations. Also, as previously stated, the arbitration notice issued by the Petitioner clearly states the name of the arbitrator it wishes to appoint.
Law clearly states that any challenge to the tribunal’s jurisdiction shall be made before it under Section 13(3) of the Act. It further clarifies, under sub-section (2), that the tribunal may continue proceedings and pronounce an award in case the Section 13(3) challenge does not survive. Moreover, precedent has categorically clarified [1] that after the appointment of an arbitrator, the remedy of an aggrieved party does not lie under Section 11(6)[2] but under Section(s) 12[3] and 13[4] of the Act.
Final Takeaways & Insights
The decision in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Limited[5], has gone a long way in clearing various legal hurdles in the appointment of arbitrators under the prevailing law. Initially, the courts played a key role in the appointment of arbitrators under Section 11 of the Act, however, now, arbitration institutions have taken over.
In the case on hand, the aggrieved party subjected itself to the tribunal’s jurisdiction by making an application under Section 13 of the Act. The Court’s judgment in the instant case can be taken as a precedent by individuals and entities engaged in an arbitration agreement or proceeding to ensure thorough appreciation of the terms applicable for the appointment of the tribunal under their contract.
In the future, courts are likely to handle such cases while balancing the need to ensure the independence and objectivity of arbitrators with the fundamental principle of arbitration agreements and the court's limited ability to interfere with the parties' stated bargain as set forth in the arbitration agreement.