Arbitrator Cannot Be Substituted U/S 29A(6) Of A&C Act Unless Grounds Mentioned U/S 14 & 15 Are Satisfied: Bombay High Court

The Bombay High Court bench of Justice Somasekhar Sundaresan has held that even though the term "substitution" is mentioned under Section 29-A(6) of the Arbitration and Conciliation Act, 1996 (Arbitration Act), an arbitrator cannot be substituted in an application under this section unless the grounds specified in Sections 14 and 15 of the Arbitration Act are satisfied, which outline the conditions under which an arbitrator may be substituted. Brief Facts: These Petitions have been filed under Section 29-A of the Arbitration Act by Indiabulls Infraestate Ltd. (Indiabulls/Petitioner), seeking a one-year extension of the mandate of the Arbitral Tribunal, which expired on August 31, 2023. The proceedings involve Bliss Habitat Pvt. Ltd. ("Bliss") in Arbitration Petition No. 33 of 2025, and Imagine Realty Pvt. Ltd. ("Imagine") in Arbitration Petition No. 39 of 2025. Both arbitrations are being conducted together as a composite matter. Bliss and Imagine were allotted apartments by Indiabulls and availed loan facilities from Indiabulls Housing Finance Ltd. (IHFL), creating mortgages over the units. Although the project was completed and the occupation certificate obtained, Bliss and Imagine failed to pay the balance amounts despite multiple opportunities. Consequently, Indiabulls paid IHFL to release the mortgages and cancelled the allotments. IHFL initiated arbitration against Bliss and Imagine before a Sole Arbitrator, seeking a declaration that the loan account closure was valid. On August 11, 2020, Bliss and Imagine sought to implead Indiabulls into the arbitration. However, on November 7, 2020, the Arbitrator dismissed the application, holding that the disputes with IHFL (regarding loan redemption) were distinct from disputes with Indiabulls (relating to allotment cancellations). Meanwhile, on an application filed by Bliss and Imagine under Section 11 of the Arbitration Act, an Arbitral Tribunal was constituted by order dated December 7, 2020. Though Section 11 was invoked to initiate arbitration against Indiabulls ("Indiabulls Arbitration"), the Learned Single Judge, noting the parties' consent, directed that the same Sole Arbitrator already appointed in the IHFL Arbitration would adjudicate the Indiabulls Arbitration as well. Indiabulls filed these Petitions under section 29A of the Arbitration Act on September 29, 2023. In their replies dated November 2, 2023, Imagine and Bliss challenged this Court's jurisdiction, claiming they had filed separate Section 29-A petitions before the Delhi High Court. Contentions: Bliss and Imagine submitted that if this Court holds that it has jurisdiction, the Sole Arbitrator should be substituted due to delays in completing the arbitration. They further submitted that the mandate of the Arbitral Tribunal would have expired on April 19, 2022. However, extensions, including those necessitated by the Covid-19 pandemic, extended the timeline to August 31, 2023, without the proceedings being completed. They criticized the Arbitrator for the slow conduct of the arbitration, citing delays in both the Indiabulls and IHFL Arbitrations as evidence of this inefficiency. They further contended that the Arbitrator's refusal to implead Indiabulls in the IHFL Arbitration and to club the two arbitrations indicates bias on the part of the Arbitrator. It was further submitted that on February 2, 2024, they filed interim applications seeking substitution of the Arbitrator under Section 29-A of the Arbitration Act, stating that the Arbitrator had prejudged the case therefore the Arbitrator should be substituted. Observations: The court at the outset noted that on a perusal of section 29A (6) of the Arbitration Act, it becomes clear that the jurisdictional Court would have the power to substitute the arbitrator. However, such power can never be construed to be an absolute power that can be exercised for the asking and that too by a party aggrieved by having lost in a parallel arbitration. It further opined that substitution of an arbitrator is envisaged in Section 15 of the Arbitration Act where the mandate of the arbitrator terminates due to his withdrawal from office or pursuant to an agreement between the parties. It further added that under Section 14 of the Arbitration Act, in addition, it is seen that if the arbitrator becomes de jure or de facto unable to perform his functions or for other reasons, he fails to act without undue delay, an arbitrator may be replaced. Based on the above, it held that the jurisdiction under Section 29-A does not allow for the arbitrary substitution of an arbitrator. For substitution to be valid, the arbitrator must be de jure or de facto ineligible under sections 14 or 15 of the Arbitration Act which was not the case here. Based on the above, it held that allegations that the arbitrator had made up their mind are speculative, even if ...

Arbitrator Cannot Be Substituted U/S 29A(6) Of A&C Act Unless Grounds Mentioned U/S 14 & 15 Are Satisfied: Bombay High Court

Mohd Malik Chauhan

Tags