Delhi High Court appointed a substitute Arbitrator on account of abandonment of Arbitration proceedings by the erstwhile Arbitrator

Case title: North East Centre of Technology Application and Reach (NECTAR) Vs Divine Bamboo Mat Manufacturing Pvt. Ltd. & Anr.

Case no.: O.M.P.(T) 1/2024

Decision on: April 8th, 2024

Quoram: Justice Ms. Justice Neena Bansal Krishna

Facts of the case

The present petition sought for the appointment of a substitute Arbitrator. In this case, NECTAR and Divine Bamboo Mat Manufacturing Pvt. Ltd. had entered into a contract in 2008, through the Original Agreement for Technology Development Assistance valued at Rs. 1,75,00,000/- in lieu of setting up and developing the project for manufacturing of Bamboo Mat Composites. In furtherance of it, a Hypothecation Deed was executed between the parties at New Delhi with regard to certain present and future moveable assets of the respondent. The parties also entered into a Supplementary Agreement (I) which modified the original agreement in respect of the sanction amount. Subsequently, another Supplementary Agreement (II) was entered by the parties, wherein the respondent agreed to repay the amount of Rs. 2,20,00,000/- according to the modified schedule. Though, the petitioners made proposals for settlement, the respondent failed to pay the due amount.

The Clause 17 of Original Agreement provided for Arbitration and also mentioned the venue of Arbitration to be New Delhi. Consequently, the Notice of Invocation of Arbitration was served to the respondent. But however, they ignored the same and stopped communicating with the petitioner. The petitioner appointed the sole Arbitrator to adjudicate the disputes inter se the parties. Upon commencement of arbitral proceedings, both the parties submitted their claims and counterclaims before the Arbitrator. However, the matter reached a deadlock when the respondent filed an Application under Sections 12 and 13 of the Act challenging the appointment of Arbitrator.

Submission of the Parties

The Counsel for the Petitioner detailed the array of facts in the submissions. He asserted that despite the agreement to pay the outstanding amount by the respondents, they defaulted in their repayment obligations in terms of Original Agreement, Supplementary Agreement (I) and (II). Further, he submitted all the facts and circumstances of the case leading to its deadlock. Hence, the Counsel filed a petition under Section 14 read with Sections 15 and 11 of the Arbitration and Conciliation Act, 1996 seeking for the appointment of a substitute Arbitrator to break the deadlock.

The Counsel for respondents on instructions submitted that he has no objection in allowing the present petition. Hence, he did not raise any objections in the present matter.

Legal Provisions

Section 11 – It provides for the Appointment of Arbitrators.

Section 12 & 13 – They provide for the Grounds and Procedure for challenging the Appointment of an Arbitrator.

Section 14 & 15 – They provide for the Termination of Mandate of Arbitrator and his Substitution by another.

Court’s Analysis and Judgement

The Court addressing the question of limitation for filing the application relied on the case of Tarun Kr. Jain, Sole Proprietor vs. M.C.D., which held the limitation period for the substitution of Arbitrator under Section 14 of the Act, 1996 to be three years. It noted that in the present case the time limit for the mandate of the Arbitrator had expired, as per Section 29A of the Act, 1996, even after excluding the COVID-19 Pandemic period. Considering the fact that no proceedings have been undertaken by the Arbitrator since 14.12.2019 when the Application under Section 12 of the Act, 1996 was made, the Court stated that the Arbitrator had abandoned the Arbitration proceedings and also had withdrawn from his Office.

In light of these circumstances, the Delhi High Court allowed the present petition and appointed Mr. Justice V.K. Jain, retired Judge of Delhi High Court, as a substitute Arbitrator to adjudicate the disputes between the parties. Thereby, it facilitated the parties to present their claims and counterclaims before the arbitrator.

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.”

Judgement Reviewed by – Keerthi K

Click here to view the Judgement