The Delhi High Court's decision on removal of arbitrator under Section 11 of the Arbitration & Conciliation Act: A welcome step

The Delhi High Court recently in Oyo Hotels & Homes Pvt. Ltd. v. Rajan Tewari & Anr, while deciding a petition under Section 11(6) of the Arbitration & Conciliation Act, 1996, held that a Court has the power to set aside the appointment of an arbitrator, if the appointment is ex-facie contrary to the arbitration clause, and thus is non est in law.

While setting aside the appointment of the sole arbitrator so appointed by one party, the Court took recourse to Section 11(6) of the Act and appointed another arbitrator to adjudicate the disputes between the parties.

The aforesaid decision raises an important and interesting question of law as to the powers of the Court to remove an already appointed arbitrator, without a party following the drill of Section(s) 12 to 15 of the Act. This raises a further question as to whether the principle of kompetenz – komptenz, as so often preached by courts, is violated by such a course of action.

The Supreme Court in the case of Antrix Corporation Ltd v. Devas Multimedia Pvt. Ltd had referred this very question to a larger bench. It would be useful to extract the questions framed by the Supreme Court in the aforesaid case:

(i) Whether the jurisdiction of the Court under Section 11 extends to declaring as invalid the constitution of an arbitral tribunal purportedly under an arbitration agreement, especially, where the tribunal has been constituted by an Institution purportedly acting under the Arbitration agreement?

(ii) Whether the jurisdiction of an arbitral tribunal constituted by an institution purportedly acting under an arbitration agreement can be assailed only before the Tribunal and in proceedings arising from the decision or award of such Tribunal and not before the Court under Section 11 of the Act?

(iii) Whether, once an arbitral tribunal has been constituted, the Court has jurisdiction under Section 11 of the Act to interfere and constitute another Tribunal?

The aforesaid reference came to be decided on May 10, 2013 by a Division Bench. One of the arguments raised by the respondent in the case was that the principle of kompetenz–komptenz would certainly apply and the tribunal would have complete authority over the questions as to the validity of its constitution. The Supreme Court, while answering the question so posed to it, held that the appointment of an arbitrator can certainly be challenged by a party, but the same must be done taking recourse to Sections 12–15 of the Act, and not Section 11.

In fact, the Supreme Court was categorical in holding that,

“In a proceeding under Section 11 of the 1996 Act, the Chief Justice cannot replace one arbitrator already appointed in exercise of the arbitration agreement.”

The view of the Division Bench was reinforced in another judgment titled Pricol Ltd v. Johnson Controls Enterprise Ltd & Ors, in which Justice Ranjan Gogoi (as he then was) dismissed the Section 11 petition on this very ground, leaving it open to the petitioners to avail other remedies available in law to challenge the appointment of the arbitrator.

Barely a month later, Justice Gogoi in Walter Bau AG v. Municipal Corporation of Greater Mumbai & Anr took a completely different view and held:

“9. Unless the appointment of the arbitrator is ex facie valid and such appointment satisfies the Court exercising jurisdiction under Section 11(6) of the Arbitration Act, acceptance of such appointment as a fait accompli to debar the jurisdiction under Section 11(6) cannot be countenanced in law...

...The option given to the respondent Corporation to go beyond the panel submitted by the ICADR and to appoint any person of its choice was clearly not in the contemplation of the parties. If that be so, obviously, the appointment of Shri Justice A.D. Mane is non- est in law. Such an appointment, therefore, will not inhibit the exercise of jurisdiction by this Court under Section 11(6) of the Arbitration Act. It cannot, therefore, be held that the present proceeding is not maintainable in law..."

The aforesaid view appears to be in stark contrast to the views expressed by the Division Bench of the Supreme Court in Antrix, and though an attempt was made to distinguish the said judgment on facts, the question remains as to whether a Single Judge ought to have followed the questions of law decided in Antrix.

Two further decisions of the Supreme Court in TRF Limited v. Energo Engineering Projects Ltd and Perkins Eastman Architects DPC v. HSCC (India) Ltd clarified the position and reinforced the decision in Walter Bau. In TRF, a three-judge Bench of the Supreme Court distinguished Antrix by stating that the said decision was on its facts and that the same does not lay down an absolute proposition of law that courts cannot remove an arbitrator while exercising powers under Section 11 of the Act. The said decision found the view taken by the designate judge in Walter Bau to be in “consonance with the binding authorities” referred to in the said decision.

In Perkins, this question was once again raised before a Division Bench of the Supreme Court, which was deciding a petition under Section 11(6) of the Act. It may be noted that in the said case, an arbitrator already stood appointed, and the argument raised by the respondent was that no reliefs could be granted under Section 11(6) of the Act. While considering the authorities referred to above, the Supreme Court clearly held that there was no bar on entertaining such a petition, and finally appointed another arbitrator in place of the already appointed arbitrator.

What is interesting is that the above two decisions concern primarily the eligibility of a person to be appointed as an arbitrator. The two decisions referred above firstly find that the person so appointed as an arbitrator is/was actually disqualified by virtue of the amendments to the Act and introduction of the Fifth Schedule, and only then go on to appoint an arbitrator in place of the said ineligible person.

The fact situation is completely different in the case of Oyo, and it was not the case of the petitioner therein that the arbitrator so appointed was ineligible. On the contrary, the case set up by the petitioner was that the manner of appointment of the sole arbitrator unilaterally by the respondent was directly contrary to the arbitration clause and as such was non est in law. The Delhi High Court in the cases of Naveen Kandhari v. Jai Mahal Hotels and Manish Chhibber v. Anil Sharma, has taken a similar view.

The approach of the courts in the judgments referred above appears to be a more practical, sensible and justice-friendly approach. After all, courts are constituted to impart justice to litigants who knock on their doors. This is a far cry from the traditional “touch me not” approach that courts have especially in matters relating to arbitration.

The principle of kompetenz kompetenz, if applied in the present case strictly, would have required the parties to complete the rigmarole of arbitration proceedings and wait for the eventual award before a challenge could be laid to the constitution of the tribunal under Section 34 of the Act. It is true that Section 16 of the Act provides a remedy, but the practical and sad reality is that Section 16 applications are seldom allowed, and often they are decided along with the main matter.

In my limited experience, I have found courts always struggling with technicalities in arbitration matters, be it questions as to seat, venue, jurisdiction, limitation et al. The courts often forget that arbitration is only an alternate forum of adjudication of disputes and the idea at the end of the day is to impart justice. Justice, however, seems lost in the whole process and often precious judicial time is spent only on deciding technical pleas raised by parties.

In the aforesaid context, the view of the Delhi High Court comes as a positive change, and it is hoped that courts unshackle themselves from the technicalities and start imparting substantial justice, whether in arbitration or other matters. This decision (and others referred) is certainly a welcome step!

The author is an advocate practicing at the Delhi High Court.

Disclaimer: The views and opinions expressed in this article are those of the author's and do not necessarily reflect the views of Bar & Bench.