Mere Delay In Passing The Award By Itself Cannot Be The Ground To Appoint Another Arbitrator: SC

The Supreme Court has observed that mere neglect of an arbitrator to act or delay in passing the award by itself cannot be the ground to appoint another arbitrator in deviation from the terms agreed to by the parties.

The bench comprising of Justice R. Banumathi and Justice Indira Banerjee held thus while considering appeal against Rajasthan High Court order appointing a retired District Judge as the sole arbitrator to resolve the dispute between the parties, by allowing application under Section 11 and Section 15 of the Arbitration and Conciliation Act, 1996, filed by contractor.

In this case, the terms of agreement provided for arbitration by the Managing Director of the Rajasthan Small Industries Corporation Limited himself or his or her nominee for the sole arbitration. One retired IAS officer was initially appointed as the sole arbitrator on 21.02.2005. Later in 2009, the Chairman-cum-Managing Director of the Corporation was appointed to act as the sole arbitrator by the consent of both the parties. The contractor approached the High Court contending that since for a long period of about ten years, no award has been passed and that the arbitrators were kept on changing for one reason or other. Allowing this application, the High Court appointed the new Arbitrator. While the High Court was in seisen of the Arbitration application, the Arbitrator passed an award.

On appeal by the Corporation, the bench observed that, when the parties have consciously agreed that the disputes or differences shall be referred to the Managing Director himself or his nominee for sole arbitration and having participated in the arbitral proceedings before arbitrator for quite some time, the contractor cannot turn round and seek for appointment of an independent arbitrator.

"The respondent having participated in the proceedings before the arbitral tribunal for quite some time and also having expressed faith in the sole arbitrator, is not justified in challenging the appointment of the Managing Director of the appellant-Corporation as the sole arbitrator", the court said.

The bench also rejected the contention on behalf of the contractor that Section 12(5), which prohibits the employee of one of the parties from being an arbitrator, applies in this case. The court observed that, in this case, the agreement between the parties was entered into on 28.01.2000 and the arbitration proceedings commenced way back in 2009.

"In the case in hand, the arbitration proceedings started way back in 2009 long before 2015 Amendment Act came into force and therefore, 2015 Amendment Act is not applicable to the case in hand. The statutory provisions that would govern the matter are those which were then in force before the Amendment Act", the court added.

The court further held that the high court was not right in appointing an independent arbitrator without keeping in view the terms of the agreement between the parties. As regards the issue whether the High Court was right in terminating the mandate of the arbitrator appointed as per the agreement, the bench, referring to Russell on Arbitration, said: "It is true that there was some delay in passing the award. 23 However, between 2011 and 2013, the respondent has not filed any application to expedite the proceedings and for passing of the award. The respondent has neither filed the Request Case for passing of the award at an early date nor filed the petition under Section 14 of the Act for termination of the mandate of the arbitrator that the arbitrator has 'failed to act without undue delay'.. Mere neglect of an arbitrator to act or delay in passing the award by itself cannot be the ground to appoint another arbitrator in deviation from the terms agreed to by the parties."

By invoking Article 142 of the Constitution, the bench also set aside the award passed by the Arbitrator observing that since the High Court was in seisen of the matter, he could have given further opportunity to the other party. It also appointed the present Managing Director of the corporation as the sole arbitrator and directed him to take up the matter and continue the proceedings.