Arbitrator cannot be changed because of delay in passing of award

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Supreme Court of India declared that a party to a dispute cannot move an application for appointment of a new arbitrator merely because there was a delay in passing of the award.

Facts of the Case

Appellant awarded the tender for Road Transportation of ISO containers and cargo to Respondent. After delayed but successful execution of the tender, a dispute arose between the parties on certain issues. On respondent’s request according to the clauses of the agreement, a sole arbitrator was appointed by the appellant. Since both the parties were dissatisfied with the working of the sole arbitrator, they mutually agreed to the appointment of Chairman-cum-Managing Director of the appellant as the sole arbitrator. Despite the appointment of a new arbitrator, Proceedings moved at a snail’s pace. Respondent raised suspicion on impartiality and independence of the new arbitrator. After a few hearings respondent’s legal representatives gave his consent to Chairman-cum-Managing Director being the sole arbitrator. Arbitration moved ahead and proceedings were concluded. Subsequently, Arbitrator passed an order saying that due to tampering of file it will take him a little more time to pass the final award and requested the parties to be patient. Respondent sent a legal notice to appellant twice, saying that despite mutual settlement before the arbitrator, the arbitrator is yet to pass the award and requested the appellant to pay a sum of Rs.3,90,81,602/- which was agreed upon by both the parties. Appellant replied to the above-mentioned legal notice of the respondent saying that matter was not settled and they never agreed to pay any amount to the respondent. Thereafter, Respondent filed a petition under section 11 of the Arbitration and Conciliation Act,1996 requesting Rajasthan High Court to appoint a new arbitrator. High Court appointed a new arbitrator. While the High Court was in session, arbitrator passed the award. Appellant challenged the said appointment before Supreme Court of India.

Issues

  1. Could an employee of one of the parties be appointed as the Arbitrator in the light of 2015 amendment?
  1. Was High Court correct in appointing a new arbitrator on account of delay in passing of award?

Judgement

Division Bench of the Supreme Court of India consisting of Justice Indira Banerjee and Justice R. Bhanumati after listening to both the sides answered the issues in the following manner:

On issue no.1, Bench said that

“In the case in hand, the arbitration proceedings started way back in 2009 long before 2015 Amendment Act came into force and therefore, 2015 Amendment Act is not applicable to the case in hand. The statutory provisions that would govern the matter are those which were then in force before the amendment.”
Moreover, Court added that “The respondent having participated in the proceedings before the arbitral tribunal for quite some time and also having expressed faith in the sole arbitrator, is not justified in challenging the appointment of the Managing Director of the appellant-Corporation as the sole arbitrator”

On the issue No.2

Bench set aside the order of High Court appointing the new arbitrator and quoted Russell on arbitration to support its decision. The bench said that mere delay in passing of award cannot be a ground to appoint a new arbitrator. Furthermore, commenting on the independence of the arbitrator bench also said that Respondent did not bring any material on the record which pointed to the fact that arbitration was carried out in a biased manner.

Author’s Opinion

Arbitration and Conciliation Act,1996 was brought to speed up the legal process in case of commercial disputes. However, In India, Arbitration proceedings still take a very long time to finish. 2015 Amendment makes it mandatory that arbitration proceedings should be completed in one year but it is not strictly enforced. New International Arbitration Centres are being built in India, for these institutions to be successful it is very important that arbitration disputes are resolved expeditiously.

 

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