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This article is written by Shephali Jha pursuing a Certificate Course in Arbitration: Strategy, Procedure and Drafting from Lawsikho.

Table of Contents

Introduction 

The Delhi High Court in the Oyo Hotels & Houses Pvt. Ltd. v. Rajan Tewari & Anr has held that any competent court has the power to set aside an appointment of an Arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996. The appointment can be challenged only when the document available in front of the court is explicitly defective, contradicting the arbitration clause and therefore absent in law. 

This means that a court can remove an arbitrator without following any procedure under section 12 to section 15 of the Arbitration and Conciliation Act, 1996. The court can also appoint another arbitrator to adjudicate and constitute the tribunal for resolving the disputes between the parties. The jurisprudential doctrine (Principle of Kompetenz-Kompetenz) or concept that came into existence in the Federal Court of Germany whereby a legal body such as a court or in this case arbitral tribunal has the jurisdiction to rule its competence before it. 

Section 16 of the Arbitration and Conciliation Act reflects the same concept and is not consistent with the above Delhi High Court’s ruling. 

Background 

In the Antrix Corporation Ltd. v. Devas Multimedia Pvt. Ltd, the Supreme Court pronounced a judgement on similar issues. The court held that the appointment of an arbitrator can be challenged by a party. Although, this must be done according to Section 12 to 15 of the Arbitration and Conciliation Act, 1996.  

The Supreme Court very firmly gave its view that “In a proceeding under Section 11 of the 1996 Act, the Chief Justice cannot replace one arbitrator already appointed in the exercise of the arbitration agreement.” 

Justice Gogoi gave two very conflicting decisions in two cases where similar issues of appointment of arbitrator under section 11 came up.  

In Pricol Ltd v. Johnson Controls Enterprise Ltd & Ors, he dismissed the Section 11 petition citing other remedies available in law to challenge and re-appoint arbitrator. 

And a month later, Justice Gogoi gave a very contrary view in Walter Bau AG v. Municipal Corporation of Greater Mumbai & Anr. He said that “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.”

arbitration

Arguments advanced in the Oyo Hotels case

The above case was filed by Oyo Hotels & Houses Pvt. Ltd. Under Section 11(6) of the Arbitration and Conciliation Act, 1996 to appoint a sole arbitrator to adjudicate the claims of the Petitioner because the previously appointed arbitrator has no jurisdiction to adjudicate the disputes between the parties. The petitioner and respondent entered a Lease Deed. After the Coronavirus pandemic, the petitioner’s business was affected and he invoked the ‘force Majeure clause via an email.

Petitioner:

  1. The petitioner submitted that the respondent breached the terms of Clause 11.2.1 of the Lease Deed which stated that it was the respondents’ obligation to maintain the commercial establishment. After giving enough time and repeated communication of the same, the respondent failed to complete a set of documents under the same clause. 
  2. The petitioner submits that the respondent issued a letter demanding a sum of money by misrepresenting the clauses of the Lease Deed on 03.06.2020. Respondent invoked the ‘Arbitration Clause’ and sent a notice on 23.06.2020 and nominated an arbitrator. The petitioner could not respond to the notice because of logistical constraints due to the Coronavirus pandemic. The arbitrator recommended by the respondent was not confirmed by the petitioner.
  3. Even when there was no confirmation, the respondent illegally confirmed the appointment of an arbitrator instead of approaching the court. The petitioner was made aware of the appointment of a sole arbitrator when the arbitrator sent a notice on 12.08.2020 for the primary hearing. This is also when the petitioner objected and sought cancellation on 26.08.2020. 
  4. Even after the objection, the sole arbitrator went on with the hearing as scheduled. The petitioner raised his objection on this primary hearing as well. This was against the settled principles of law and Lease of Deed. The sole arbitrator appointed by the respondent is de facto as well as de jure incapable of adjudication of the present dispute. 
  5. The Petitioner also cited cases such as Naveen Kandhar Anr. v. Jai mahal Hotels Pvt. Ltd (Arb. P. 453/2017) and Chibber v. Anil Sharma & Anr. (Arb.P. 249/2020) in which appointment of an arbitrator in violation of the agreed procedure is considered as not found and therefore shall be ignored. 

Respondent:

  1. The respondent alleges that the petitioner is seeking termination of an arbitral award using the section 11 application. The petitioner is also asking for reliefs that do not fall under the ambit of section 11 and is infructuous. The petitioner attended the hearings as well which confirms his consent to the arbitrator. 
  2. The respondent submitted that the termination cannot be done under section 11(6) application of the sole arbitrator without following the recourse of sections 12-15 of the Act. The petitioner has also failed to prove the appointment de facto or de jure under section 14 of the Act. 
  3. Also, the Arbitrator does not fall under the fifth or the seventh schedule of the Act. The case of Antrix Corporation Ltd. v. Devas Multimedia Pvt. Ltd, as well as Pricol Ltd v. Johnson Controls Enterprise Ltd & Ors, were cited in which the court said that the remedy lies elsewhere and under the different provisions of the Arbitration Act but not under section 11(6). 
  4. The respondent submits that the petitioner did not give a prior notice under section 21 of the act which is the sine qua non for filing a petition under section 11. Therefore, the present petition is complete expedient. 
  5. The petitioner did not pay the rent since march of 2020 even after repeated reminders by the respondent which led to the invocation of the arbitration clause. 
  6. The petitioner was given 15 days for filing an appropriate application challenging the appointment of an arbitrator on the first date of hearing but no application was moved before the sole arbitrator. They have lost their right to challenge and attract Doctrine of estoppel against the petitioner. 

Decision 

The court accepted the petitioner’s claims by stating that the recommendation of an arbitrator by the respondent was not confirmed by the petitioner and they should file an application under section 11 of the Act.

  1. The procedure of appointment of arbitrator is not found in the arbitration clause and will be ignored. 
  2. In Antrix (supra) and Pricol Limited (supra), the appointment of the arbitrator was as per the alternative procedure agreed upon and already submitted to the jurisdiction of the arbitrator respectively. 
  3. The petition was allowed and the sole arbitrator was appointed by the Delhi High Court.

Pros of the decision 

The Arbitral Tribunal at times focuses too much on the technicalities of the case including seat, jurisdiction, removal and appointment. This discussion should be limited only to the procedural hearings but gets bewildered with other proceedings as well.

Section 16(2) of the Arbitration and Conciliation Act, 1996 says that any plea relating to the competence of the arbitral tribunal should be decided before the statement of defenses is submitted. This application is allowed in very limited circumstances. 

When section 16 is allowed, rather than discussing the substantial and factual nature of disputes, parties choose to raise such matters. 

This discourages the proceedings and provides limited time. 

Also, tribunals have twelve months of time to give reliefs and when the court intervenes the process will be more lucrative and fastened. 

Cons of the decision 

The Tribunals’ independence from Civil Procedure Code, 1908 is the biggest advantage which eventually caters to speedy judgement pronouncements. 

The Arbitration and Conciliation Act, 1996 is the procedural code and gives significant freedom to the parties. The main attraction for the parties to solve their disputes through arbitration mechanism is less interference from courts and more specialised hearings.

After the Delhi High Court’s ruling, this fails to comply with the concept. It is not only taking away party autonomy by deciding an arbitrator without their consent but also shrinking the eminence of the act by interfering. 

The Court under section 11(6) has the jurisdiction to provide other means for securing the appointment rather than just appointing an arbitrator. The court has also not left any other options available in law for the appointment of arbitrators making the appointment by court binding on both parties. 

Conclusion 

The above ruling did not deal with the eligibility of the arbitrator rather it dealt with the manner of appointment of the arbitrator which was not in accordance with law under the Arbitration clause. The above judgment shall be applicable only when the appointment made under section 11(6) of the Arbitration and Conciliation Act, 1996 is flawed and contrary to the Arbitration clause in the contract. 

References 


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