Effect Of Resignation Of a Named Arbitrator

In a recent Judgment Supreme Court of India, reported in SCC as (2016) 3 Supreme Court Cases 619 Shailesh Dhairyawan Vs Mohan Balkrishna Lulla, dealt with the important issue of resignation or refusal of a named arbitrator and consequential appointment of another arbitrator replacing the named arbitrator. An appointment or replacement of an arbitrator can be done either on the basis of the terms of an arbitration agreement or on the basis of the terms of consent of the parties. In both the cases there is a possibility for naming a particular arbitrator while agreeing either for an arbitration agreement or while giving a consent to arbitration, when originally there was no arbitration agreement between the parties. In many such cases neither any arbitration clause nor any consent terms prescribe any procedure for replacement of such an arbitrator. Hence a doubt arise, about the legal the sustainability of an arbitration clause, when the named arbitrator when resigns or unable to perform as an arbitrator.

In the given case an parties did not have an arbitration agreement in the contract and parties consented for settling their disputes, by arbitration and also incorporated a name of an arbitrator in the terms of the consent to arbitration, to arbitrate the disputes between the parties and hence High court invoking its powers under Section 89 of the Code of Civil Procedure disposed the case. Later after sitting for many hearings, the said named arbitrator refused to arbitrate the disputes between the parties and hence the question arose, if a new arbitrator can be appointed in the place of the named arbitrator. The plaintiff made an application to the High court seeking to appoint a new arbitrator, which was objected to by the defendant. High Court appointed an arbitrator and the defendant appealed to Supreme Court of India, challenging the said new appointment.

While disposing of the appeal, Supreme Court of India took into consideration, S.15, 11(5) read with Section 7 of the Arbitration & Conciliation Act,1996 and S.89 of the Code of Civil Procedure in addition to the terms of the consent between the parties. The Supreme Court of India held that for the purpose of appointment of arbitrators, the consent between the parties shall be the “Rules” governing the appointment procedure. The recitals of the consent even though mentioned the name of the arbitrator it did not bar any replacement expressly or impliedly. More over S.15(2) of the Arbitration & Conciliation Act,1996 clarifies that “ substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced”. It was held that for the above stated reasons, when the mandate of the appointed arbitrator terminates, appointment of substitute arbitrator shall be made in accordance with arbitration agreement/ consent terms unless agreement/consent terms either expressly or by necessity implication exclude substitution of an arbitrator, whether named or otherwise. Hence even if the named arbitrator is not able to perform, the arbitration clause survives.