When Mandate Of Arbitrator Is Terminated U/S 15 Of Arbitration Act, New Arbitrator Can't Be Appointed By Court U/S 11(6) Of Act: Telangana HC

The Telangana High Court bench of Justice N.V. Shravan Kumar has held that when the mandate of an arbitrator terminates under Section 15 of the Arbitration Act, a substitute arbitrator must be appointed in accordance with the original procedure agreed upon by the parties. In such cases, the court cannot appoint a new arbitrator under Section 11, as the appropriate course is to appoint a substitute following the mechanism under Section 15(2), not initiate a fresh appointment process. Brief Facts: This Application is filed under Section 11(6) of Arbitration and Conciliation Act, 1996 (for short 'the 1996 Act' hereinafter) seeking appointment of arbitrator for adjudicating the disputes between the Applicant and Respondent No.1. the Applicant was a successful bidder and was awarded with work pertaining to spill way and powerhouse of Koteswar Hydro Electric Project at Tehri Dam, Uttarakhand. The Applicant entered into an agreement dated 14.11.2002 with Tehri Hydro Electric Development Corporation Limited (hereinafter referred as 'THDC'). Later respondent No.3 approached the applicant and participated in the work. When the work was in progress, certain disputes arose between the Applicant and THDC and legal proceedings were initiated and an award dated 17.12.2010 was passed.The award was challenged before the Delhi High Court, which on 13.12.2019 directed THDC to deposit ₹4.5 crores, allowing the Applicant to withdraw it against Bank Guarantees. Respondent No.3 later proposed opening an Escrow Account for handling the deposited amount. Accordingly, respondent No.1 was appointed Escrow Agent under an agreement dated 20.03.2020. Key terms included: (i) respondent No.3 providing 100% Bank Guarantees, (ii) the Applicant depositing withdrawn funds into the designated Escrow Account, and (iii) disbursal of 5.5% to the Applicant and the balance to respondent No.3. Following compliance, ₹150 crores were deposited and distributed per the agreement. With all obligations fulfilled, the Escrow Account has served its purpose and can no longer be operated. As per clause 13 of the Escrow Agreement, it stands terminated upon written consent from the Applicant and respondent No.3, and respondent No.1 ceases to be Escrow Agent. Contentions: The Applicant submitted that an unauthorized person from respondent No.3 has issued an e-mail dated 01.11.2022 requesting respondent No.1 from refraining and closing the Bank account by alleging that respondent No.3 is also party to Escrow Agreement and the said account may be required in future. It was further submitted that Respondent No.3 has filed a separate arbitration application (A.A. No. 215 of 2023) concerning the agreement dated 15.11.2013. The Applicant, seeking efficiency and consistency, requested a composite reference by consolidating disputes under the main agreement, ancillary agreements, and the Escrow Agreement dated 20.03.2020, as they are interlinked and involve the same parties and facts. It was also submitted that this would avoid conflicting awards and unnecessary costs. Accordingly, the Applicant filed separate arbitration against Respondent No.3 and now seeks appointment of an arbitrator under Clause 12 of the Escrow Agreement. No relief is sought against Respondents No.2 and No.3 in this application. Per contra, Respondent No.1 submitted that respondent No.1 is not a disputing party and is only an Escrow Agent appointed by both the parties and as per clause 13(2) of the Escrow Agreement, unless joint agreement is filed, respondent No.1 cannot close the Escrow account and as on date, the Escrow Account is made debit frozen, as such there is no pending disputes warranting the appointment of arbitrator. Respondent No. 3 submitted that Once the Tribunal commenced proceedings attended by the Applicant's nominee, and the arbitrators subsequently recused due to the Applicant's conduct, the appropriate remedy lies under Sections 14 and 15 of the Arbitration Act. Since the Applicant failed to appoint a new nominee arbitrator, they have now forfeited that opportunity, rendering the present application not maintainable. Observations: The court noted that in the Applicant's letter dated 19.06.2020, the Bank was informed that the purpose of the Escrow Agreement had been fulfilled and was requested to take necessary steps to prevent further unintended transactions, along with submitting transaction details for record-keeping. It further added that however, the letter contained no explicit direction to close the Escrow Account. In contrast, Respondent No.3's letter dated 25.06.2020 clearly instructed closure of the account, citing fulfillment of purpose and requesting termination of the Escrow Agreement under Clause 13.3. It further noted that presiding Arbitrator by an order dated 05.03.2024 did not wish to continue the matter and withdrew from the office as...

When Mandate Of Arbitrator Is Terminated U/S 15 Of Arbitration Act, New Arbitrator Can't Be Appointed By Court U/S 11(6) Of Act: Telangana HC

Mohd Malik Chauhan

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