The Arbitration and Conciliation Act, 1996 was enacted to serve the purpose of timely and speedy proceedings in order to prevent years and years of backlog in overburdened courts. The provisions of the Act have more or less ensured that this purpose is fulfilled. However, there are certain provisions in the Act, which have a seemingly vast interpretation and therefore need consideration. Several questions with regard to the termination of mandate of the Arbitrator have arisen before the courts and in the legal fraternity. The scope of this paper is limited to the question pertaining to the flip side of arbitral autonomy imbibed in Section 15 of the Act. However, due to lack of judicial precedents, we must dive into the peripheral judgments to accord a cohesive interpretation.
The Arbitration Act undoubtedly provides for a remedy in case of withdrawal by the Arbitrator. However, the exhaustion of the remedy besides being time consuming, also causes several other prejudices in terms of wastage of time, money and access to justice. Although the Act contemplates a remedy of ‘Substitution of Arbitrator’, the said remedy in fact is not an adequate remedy. In a case where the Arbitrator seeks to withdraw from the proceedings at a stage when the oral evidence is concluded, the remedy of substitution of Arbitrator, more than often, has the same effect as that of ‘de novo’ arbitration. The withdrawal by the Arbitrator just before the pronouncement of the Award would be detrimental to the interests of the parties and may also frustrate the cause of action. Therefore, in some cases, the remedy of substitution of Arbitrator would become illusory.
Analysis of the Provisions:
Section 32 provides for termination of arbitral proceedings. Termination of proceedings can take place by the final arbitral award or by an order of Arbitral Tribunal in the circumstances contemplated by Sub-section (2) during the Interim Stage of the proceedings. Therefore, it can be understood that the termination can take place either after the completion of proceedings of arbitration or at any interim stage.
It is to be noted that whereas clauses (a) and (b) of sub section (2) of Section 32 provide for termination by or on behalf of the parties to arbitral proceedings, clause (c) provides for the termination by or at the instance of the Arbitral Tribunal. Although the provision is silent as to the circumstances or the reasons due to which the arbitral proceedings may become unnecessary or impossible, a useful reference may be made to the provisions of Sections 14 and 15 of the Act. These provisions not only clarify and give an expansive meaning to Section 32(2)(c), but also provide for a remedy of appointing a Substitute Arbitrator for the same. However, an essential aspect to be noted is the distinction between the intent and purpose of the two provisions.
Section 14(1) reads as, “The mandate of an arbitrator shall terminate if—
(a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and
(b) he withdraws from his office or the parties agree to the termination of his mandate.
Accordingly, the mandate of an Arbitrator shall stand terminated in the event the Arbitrator is either de jure or de facto unable to perform his/her functions and the Arbitrator withdraws from his office. Both the stipulations contained in clause (a) and (b) are to be satisfied. However, if we take a look at Section 15(1)(a) of the Act, which reads as - ‘where he withdraws from office for any reason,’ we need to understand that it does not necessarily mean that the Arbitrator is unable to perform his/her duties. ‘Any reason’ has a very broad scope and may also include withdrawal even in circumstances where the Arbitrator otherwise is able to continue and perform his/her duties.
Under such circumstances wherein the Arbitrator withdraws from the proceedings, the Act has ensured that the parties have the recourse of approaching the Court. However, this remedy has only been provided in Section 14(2), solely on the conditions provided in Section 14(1). Thus, in cases where the Arbitrator decides to withdraw for ‘any reason’ as provided in Section 15(1)(a), apparently there lies no remedy in the Act. This creates a loophole as the Arbitrator may withdraw for just any reason as per his/her whims and fancies at any point in the proceedings. Moreover, no timeline has been provided as such, as to how many times an Arbitration can take place if it keeps on lapsing, right before the pronouncement of the Award.
Lalitkumar Sanghavi Vs Dharamdas Sanghvi
The High Court of Bombay considered the effect of the aforementioned provisions in the case of ‘Lalitkumar V Sanghavi Vs Dharamdas V Sanghavi’. In this case, the Arbitrator terminated the proceedings due to impossibility in performance of duties. The reasons provided by him were delay in payment of fees and laches in communication by the parties which led to constant delay in continuing with the proceedings. This termination was challenged by the parties in Court under Section 11 of the Act. However, the Court dismissed this application and held that the parties should file a writ petition under Article 226 of the Constitution of India instead. The reason provided by the Court was that Section 11 is the original jurisdiction of the High Court, which is limited only to the appointment of an Arbitrator. The challenge to the action of termination can only be remedied under the writ jurisdiction.
This decision was challenged in the Supreme Court by the parties. The Supreme Court dismissed the SLP whilst confirming the order of the High Court. However, it observed that the petitioners did have the liberty to approach the Court as per Section 14 read with Section 32 of the Act. In this case, the Supreme Court categorized the withdrawal of the Arbitrator under the ambit of Section 14(1)(a), thereby concluding that the parties do have the remedy to approach the Court as per Section 14(2).
Upon being approached by an order dated 12/08/2015, the Bombay High Court held that the case was at a stage of urgency and needed to be catered to instantly. The High Court therefore directed that the original Arbitral Tribunal be restored rather than going through the procedure of Substitution. The High Court also invalidated the reasons given by the Arbitral Tribunal, whilst also ordering expeditious completion of proceedings.
This judgment however discusses on the applicability of Section 14. The wide discretion and the ambiguity surrounding Section 15 of the Act remains to be interpreted. There is a need for judicial examination of the provisions contained in Section 14(1)(a) of the Act along with the provisions contained Section 15(1). It is imperative that the phrase ‘for any reason’ has to be given its true meaning. The legislature would not have intended to allow withdrawal from the Arbitral proceedings without any fetters. The phrase ‘in addition to the circumstances’, in the opening sentence of Sub section (1) to Section 15 is an indicator that the legislature did not think of giving unfettered right to terminate arbitral proceedings. There is no particular timeline as to how many times and at what stage the Arbitrator can withdraw, which acts as a barrier in fulfilling the purpose of timely and speedy recovery.
The true intent and purpose of the phrase can also be interpreted so as to mean that the remedy provided in Sub section (2) to Section 14 of the Act would also cover withdrawal as stipulated in Section 15(1) of the Act. A question that could arise is if an Arbitrator withdraws from his office by citing Section 15 of the Act, can an aggrieved party still invoke the remedy under Section 14(2)? In the author’s humble opinion, the answer is in the affirmative. A harmonious reading of both the provisions may reasonably suggest that Section 15 is in fact an extension of Section 14 of the Act. Section 15 also states that the circumstances stipulated therein are in addition to the circumstances referred to in Section 14. Accordingly, even if an Arbitrator were to withdraw from his/her office by citing Section 15 of the Act and not Section 14, the remedy available u/s 14(2) would still be available. An aggrieved party may raise a controversy as to whether the Arbitrator was in fact unable to function either legally or on account of certain factual circumstances or whether the Arbitrator is seeking to withdraw from the proceedings unfairly or unreasonably. If the court finds that the Arbitrator has withdrawn unreasonably, then in the author’s humble opinion, the court should have the power to direct the same Arbitrator to continue with the proceedings and pronounce the Award. Any interpretation to the contrary may frustrate the very theme and object of the Act.
It is equally a settled law that there cannot be any action which does not have a remedy in law. The purpose of the Act, whilst giving autonomy to the Parties to appoint an Arbitrator, does not however provide for unjustifiable autonomy to the Arbitrator. The Arbitrator is in the position of a Judge whom the parties have chosen as per their free will. Once the Arbitrator accepts such a position, it cannot be the intent of the legislature to confer arbitrary powers to them to withdraw from the proceedings at an unreasonable will. Every action of the Arbitrator has to be justifiable and therefore, any such action of the Arbitrator is subject to the judicial review of the Court. It therefore can be safely interpreted that for any withdrawal by the Arbitrator including ‘withdrawal simplicitor’ the party aggrieved has a remedy to approach the Court.
Simran Pahwa is a 5th year student at Institute of Law, Nirma University. For any discussion related to the article, she can be contacted via mail at email@example.com