Fresh Notice Under Section 21 Not Required To Be Issued For Appointment Of Substitute Arbitrator: Jharkhand High Court

The bench of Justice Sujit Narayan Prasad held that once an application under Section 11(6) is filed by the party before the High Court, seeking appointment of arbitrator, the jurisdiction of the parties to appoint the arbitrator as per the arbitration clause is seized.

Therefore, once the mandate of the arbitrator appointed by the High Court under Section 11(6) terminates, for appointment of a substitute arbitrator, the party is not required to again make a request by issuing a notice under Section 21. The applicant can directly file an application before the High Court under Section 11(6), seeking appointment of the substitute arbitrator.

The applicant- Coal India Limited, and the respondent- Eastern India Powertech Ltd., entered into an agreement. After certain disputes arose between the parties, the applicant invoked the arbitration clause contained in the agreement and issued a notice under Section 21 of the A&C Act to the respondent. After the respondent failed to act upon the notice, the applicant filed an application under Section 11(6) of the A&C Act before the Jharkhand High Court. The High Court appointed a Sole Arbitrator and referred the parties to arbitration.

During the course of the arbitration proceeding, the Sole Arbitrator died. Subsequently, the applicant filed a fresh application under Section 11(6) before the Jharkhand High Court for appointment of a substitute Arbitrator.

The respondent Eastern India submitted before the High Court that as per Section 15(2) of the A&C Act, when the mandate of the arbitrator gets terminated, a substitute arbitrator is required to be appointed according to the rules applicable to the appointment of the arbitrator being substituted.

The respondent argued that the applicant had failed to make a request before the respondent, as required under Section 21 of the A&C Act, for seeking appointment of the substitute arbitrator. It added that the procedure for appointment of arbitrator, as contained in the arbitration clause, was not followed.

Thus, the respondent averred that the application directly filed by the applicant under Section 11(6) before the High Court, seeking appointment of substitute arbitrator, was premature and filed in contravention of the provisions of Section 15(2).

To this, the applicant Central Coalfields submitted that once the mandate of the arbitrator appointed by the High Court under Section 11(6) of the A&C Act is terminated due to the arbitrator's death, a fresh application under Section 11(6) can be directly filed before the High Court seeking appointment of substitute arbitrator. It added that there is no requirement to again follow the procedure prescribed in the arbitration clause or issue a notice under Section 21 of the A&C Act on the opposite party.

The Court observed that once a party makes request for appointment of Arbitrator as per Section 21 of the A&C Act, if the opposite party fails to appoint the Arbitrator within the statutory period, the party would have the right to make an application under Section 11(6) before the Supreme Court/High Court for appointment of the Arbitrator.

Further, the Court noted that as per Section 15(2) of the A&C Act, where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator sought to be substituted.

The Court referred to the decision of the Apex Court in Yashwith Constructions (P) Ltd. versus Simplex Concrete Piles India Ltd. & Anr. (2006), where the Supreme Court had ruled that the term "rules", as contained in Section 15(2), refer to the terms and conditions relating to the appointment of arbitrator, as contained in the arbitration agreement, as well as the rules of any institution under which the disputes were referred to arbitration.

The Supreme Court in Yashwith Constructions (P) Ltd. (2006) had held that appointment of the substitute arbitrator under Section 15(2), must be done according to the provisions relating to appointment of the arbitrator sought to be replaced, as provided in the arbitration agreement.

Thus, the High Court ruled that the application under Section 11(6) is required to be filed only after the parties have exhausted the arbitration mechanism contained in the agreement. The Court noted that the applicant had followed the terms and conditions of the arbitration clause and had issued a notice under Section 21 to the respondent, seeking appointment of the arbitrator sought to be replaced.

It took into account that after the respondent failed to act upon the Section 21 notice, the applicant was forced to file an application under Section 11(6), subsequent to which the Jharkhand High Court had appointed a Sole Arbitrator. After the said Sole Arbitrator died, the applicant directly filed an application under Section 11(6) before the Jharkhand High Court, seeking appointment of a substitute arbitrator.

Thus, the bench concluded that the "rules" mentioned in Section 15(2) of the A&C Act, as defined by the Apex Court in Yashwith Constructions (P) Ltd. (2006), were followed by the applicant at the time of seeking appointment of the arbitrator sought to be replaced. Therefore, it ruled that to seek appointment of a substitute arbitrator, the applicant was not required to again make a request under Section 21 of the A&C Act before the respondent.

The Court ruled that since all the measures and terms and conditions contained under the agreement were resorted to by the applicant, the same stood extinguished. Thus, the application filed by the applicant straightaway before the High Court under Section 11(6), seeking appointment of substitute arbitrator, was maintainable.

The bench noted that if the request made under Section 21 for appointment of arbitrator is not acted upon by the opposite party within the statutory period, the party can file an application under Section 11(6) before the Supreme Court/ High Court to seek appointment of arbitrator.

The Court held that it is a settled law that once an application under Section 11(6) is filed before the Supreme Court/High Court, the jurisdiction of the parties to appoint the arbitrator is seized. Therefore, once the mandate of the arbitrator appointed by the High Court under Section 11(6) terminates, for appointment of a substitute arbitrator, the party is not required to again make a request by issuing a notice under Section 21. The applicant can directly file an application before the High Court under Section 11(6), seeking appointment of the substitute arbitrator.

"If the objection of the learned counsel for the respondent will be accepted, then the power for appointment of arbitrator which has been seized the moment application under Section 11(6) has been filed, then again, the same will be revived which according to the considered view of this Court is not permissible.", the Court said.

The Court thus allowed the application and appointed a substitute Arbitrator.

Case Title: M/s. Central Coalfields Limited versus Eastern India Powertech Ltd.

Dated: 24.11.2022 (Jharkhand High Court, Ranchi)

Counsel for the Applicant: Mr. Amit Kumar Das, Mr. Shivam Utkarsh Sahay, Advocates

Counsel for the Respondent: Mr. Rohitashya Roy, Mr. Hemant Jain, Mr. Akchansh Kishore, Mr. Divjot Singh Bhati, Advocates

Citation: 2022 LiveLaw (Jha) 95  

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