Substitution Of Sole Arbitrator Is Warranted When His Mandate Ceases To Exist: Supreme Court
The Supreme Court was considering the appeals filed against an order of the Delhi High Court by which it had declined substitution of a sole arbitrator but had extended his mandate under Section 29A(6) of the Arbitration and Conciliation Act.
Justice Sanjay Kumar, Justice Alok Aradhe, Supreme Court
The Supreme Court has held that the substitution of a sole arbitrator is warranted, when his mandate ceases to exist to effectuate the object of the Arbitration and Conciliation Act, which mandates expeditious resolution of the dispute. The Apex Court further explained that on expiry of the initial period or extended period, the arbitrator cannot proceed with the arbitration proceeding and his mandate terminates, subject to an order of the Court passed in a proceeding under Section 29A(4).
The Apex Court was considering the appeals filed against an order of the Delhi High Court by which it had declined substitution of a sole arbitrator but had extended his mandate under Section 29A(6) of the Arbitration and Conciliation Act, 1996, for a further period of four months.
The Division Bench of Justice Sanjay Kumar and Justice Alok Aradhe held, “In so far as submission of the respondents, that, since the petition filed under Sections 14 and 15 of the Act was rejected on 24.01.2022 by the High Court is concerned, suffice it to say that the Act provides separate remedies in the circumstances mentioned in Sections 14, 15 and 29A of the Act. In any case, on 24.01.2022, the mandate of the sole arbitrator was not terminated. Therefore, the order dated 24.01.2022 does not have any impact on the decision of the petition under Section 29A of the Act filed by the appellants. The substitution of a sole arbitrator is warranted, when his mandate ceases to exist, to effectuate the object of the Act, which mandates expeditious resolution of the dispute. In view of the statutory scheme and undisputed factual position, we are satisfied that the case warranted the exercise of jurisdiction under Section 29A(6) of the Act.”
Factual Background
The appellants (husband and wife), along with three respondents (2 to 4), executed a partnership deed in 1992, which contained an arbitration clause. M/s. Bharat Textiles (first respondent) was registered in 2007 as a partnership firm. Upon disputes having arisen, the High Court appointed an Advocate as a sole arbitrator. The sole arbitrator entered the reference and issued various directions while also directing the parties to deposit various amounts towards administrative expenses. The second and third respondents questioned the action of the sole arbitrator in demanding administrative expenses, in their applications filed under Sections 14 and 15, seeking termination of the mandate of the sole arbitrator. The said applications were dismissed by a common order.
The sole arbitrator issued directions requiring the parties to deposit the administrative expenses. The appellants sought time, in an arbitral proceeding, to move an application before the High Court under Section 29A(4). Thereupon, the sole arbitrator adjourned the proceeding sine die. The appellants, thereafter, filed petitions under Section 29A(6) seeking substitution of the sole arbitrator and extension of tenure for the substitute arbitrator. The substitution of the sole arbitrator was declined, and time was extended to conclude the arbitral proceeding within a period of four months. The petitions were partly allowed. It was in such circumstances that the appeal came to be filed before the Apex Court.
Reasoning
The Bench highlighted the fact that Section 29A was inserted in the Act, due to widespread criticism of the delay in conducting the arbitration proceedings, as the delay is against the avowed object of the Act i.e., speedy resolution of the dispute. Section 29A aims to ensure time-bound disposal of the arbitration proceedings, which is in consonance with the object of the Act.
The Bench noted that Section 29A has been held to be remedial in nature and is made applicable to all pending arbitral proceedings as of August 30, 2019. The Bench also explained that Section 29A(1) mandates that an award has to be made within a period of twelve months from the date of completion of pleadings under Section 23(4) of the Act. On a perusal of the facts of the case, the Bench noted, “In view of mandate contained in Section 29A(1) of the Act, the sole Arbitrator was under an obligation to pass an award within a period of one year from 01.03.2022, i.e. on or before 28.02.2023. However, the sole Arbitrator failed to do so. The parties did not apply for extension of period to pass an award. The sole arbitrator, in view of mandate contained in Section 29A(4) became functus officio.”
The Bench further explained, “However, the fact remains that on expiry of initial period or extended period, the arbitrator cannot proceed with the arbitration proceeding and his mandate terminates, subject to an order which may be passed by the Court in a proceeding under Section 29A(4) of the Act.
Finding that the High Court erred in granting an extension when the mandate of the sole arbitrator had ceased to exist, the Bench quashed the impugned order. Terminating the mandate of the sole arbitrator, the Bench appointed a Former Judge of the Delhi High Court as the substituted sole arbitrator. “The arbitral proceeding shall resume from the stage already attained and be concluded within six months from the date of receipt of a copy of this order”, it ordered.
Cause Title: Mohan Lal Fatehpuria v. M/s Bharat Textiles & Ors. (Neutral Citation: 2025 INSC 1409)
Appearance
Appellant: Advocates Pradeep Aggarwal, Lal Pratap Singh, Umesh Pratap Singh, AOR Arjun Aggarwal, Advocates Sahil Gupta, Vishal Singh, Aman Kumar
Respondent: Advocates S. C. Singhal, Padam Kant Saxena, Megha Gaur, AOR Parmanand Gaur