Allowed

Guruswamy Rajaram, v. M/s Aliens Developers Private Limited

Telangana HC13 Dec 2023ARBAPPL/129/2023

Case brief

AI extract

What is this about?

The High Court of Telangana allowed the applicant's application to appoint a substitute sole arbitrator under Section 15 of the Arbitration Act, 1996, after the originally appointed arbitrator withdrew to take up office as Chairperson of the Appellate Tribunal for Electricity. The Court rejected the respondent's grounds regarding premature filing, lack of notice, and maintainability.

What did the court decide?

Appointment of Smt. Justice Kongara Vijaya Lakshmi as substitute Arbitrator in place of Sri Justice Ramesh Ranganathan to resolve disputes.

Guruswamy Rajaram, Vs M/s Aliens Developers Private Limited — Arbitration | Telangana HC (2023)

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[³¹⁶⁸ I

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HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD

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FRIDAY ,THE FIFTEENTH DAY OF MARCH TWO THOUSAND AND TWENTY FOUR

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PRESENT

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THE HONOURABLE SRI JUSTICE K.LAKSHMAN

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l.A.No.l OF 2023

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ARBITRATION APPLICATION NO: 129 OF 2021

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Between:

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Ms. SMFG lndia Home Finance Company Limited, Formerly Fullerton lndia Home Finance Company Limited, having its registered office at Supreme lT Park, Sth and.6th floor, B-Wing, Behind Lake Castle, Hiranandani Gardens, Powai, Mumbai-400076, having one of its branch office at 6-3-119211-6, 4th Floor, Brij Tarang Kundan Bagh, Begumpet, Hyderabad-S000'16 rep. by its Authorised Signatory Mr. Ashok Pudu

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...Petitioner/Applicant

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AND

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Mr. Shyam Sunder Agarwal, H.No.14-2-398/5, Razakpura, Goshamahal, Hyderabad-12.

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Sneha Lata Agarwal, H.No.14-2-398/5, Razakpura, Goshamahal, Hyderabad12.

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Puneet Agarwal, H. No.'1 4-2-39815, Razakpura, Goshamahal, Hyderabad-1 2.

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Puneet Oil lndustries, H.No.14-2-39811 and 2, Razakpura, Goshamahal, Hyderabad-12.

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Puneet Agro Oils, Ground floor, Plot No.228, SK Market, Mahaboob Mansion, Malakapet Hyderabad

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...Respondents/ Respondents

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Petition under Section 1 5(a) of Arbitration and Conciliation Act,^'1996, praying that in the circumstances stated in the affidavit filed in support of the Application, the High Court may be pleased to APPOINT a substitute Sole Arbitrator in Arbitration Case No. 12912021 on the file of this Hon'ble Court in the interest of justice.

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Counsel for the Petitioner : Sri Avinash Reddy

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Counsel for Respondents : Ms. Pratusha Boppana

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The Court made the following: ORDER

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HONOURABLE SRI JUSTICE^{IC LAKSHMAN}

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I.A.No.1 OF 2023 ln ARBITRATION APPLICATO^{N No.129 OF 2021}

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ORDER

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Heard Sri Avinash Reddy,^{teamed counselfor the petitionerand} Ms. Pratusha Boppana,^{leamed counselfor respondents.}

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This application is filed under^{Section 15(a) of the Arbitration} and Conciliation Act, 1996^{(for short,'the Act') to appointsubstitutesole} arbitrator in A.A.No.l29 of^{2023 contendingthat there are disputes} between the Applicant^{and Respondentswhich are arbitrabledisputes'} Pursuant to the loan agreement^{dated 28.08.2018'the Applicanthad filed} an application under Section l1^{of the Act vide A.A' No'129 of 2021 to} appoint Arbitrator to^{adjudicate the disputes between the Applicant and} the Respondents.

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On considering the contentions^{of the parties,vide order dated} 11.07.2022, this Court^{allowed the said A.A.No'129 of 2021 and} appointed Sri Justice Ramesh^{Ranganathan(FormerChief Justiceof the}

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High Court of Uttarakhand) as Arbitrator to adjudicate the disputes between the Applicant and the Respondents.

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Vide letter dated 24.12.2022, learned Arbitrator informed the

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Applicant as well as Respondents that consequent upon his appointment as the Chairperson of the Appellate Tribunal for Electricity, he took charge of the office earlier. The office of the Chairperson is govemed by the Tribunal (Conditions of Service) Rules, 2021 made under the Tribunal Reforms Act, 2021, Rule l6(3) of the said Rules stipulates that the Chairperson shall not undertake any arbitration assignment while functioning in such capacity. Therefore, he cannot continue with the arbitration proceedings. In view of the said letter and withdrawal of the leamed Arbitrator appointed by this Court from the arbitration proceedings, the Applicant had filed the present application under Section 15(a) of the Act seeking to appoint substitute Arbitrator.

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Respondents have filed counter affidavit and additional counter affidavit opposing the said application on the following grounds:-

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i. The present application is not maintainable, it is, premature. Procedure under Section 15 of the Act is not followed.

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ll. No notice whatsoever was received by the respondents before filing the present application seeking to appoint substitute Arbitrator.

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1ll. The aforesaid A.A.No.129 of 2021 was filed on the strength of arbitration clause mentioned in the loan agreement executed on 28.08.2018 i.e. when the contractual right to arbitrate loan recovery matters which were the domain of the Debt Recovery Tribunal (DRT) was not determined by the Apex Court. Placed reliance on the principle laid down by the Apex Court in Vidya Drotia vs. Durga Trading Corporationl

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lv The reliefs being of recovery of the sum as lent under the Home Loan Agreement, the Applicant is bound to approach DRT, as the right to arbitrate loan agreements are non-arbitrable.

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As discussed supra, on consideration of the contentions of the

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parties, vide order dated 11.07 .2022, this Court allowed the aforesaid A.A.No.129 of 2021 and appointed Sri Justice Ramesh Ranganathan (Former Chief Justice of the High Court of Uftarakhand) as Arbitrator to adjudicate the disputes between the Applicant and the Respondents. Vide '1zozr1^z scc r

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letter dated 24.l2.2022,learned Arbitrator withdrew from the arbitration proceedings. Therefore, the Petitioner/Applicant had filed the present application seeking to appoint substitute Arbitrator.

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In view of the contention taken by the respondents that no notice

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was issued pursuant to Section 15(a) of the Act, this application is

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premature, it is relevant to extract Section 15 of the Act:_

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Termination of mandate and substitution ofarbitrator._

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(l) In addition to the circumstanccs referred to in section l3 or section 14, the mandatc of an arbitrator shall terminate

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(a) where he withdraws lrom office lor any reason; or

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(b) by or pursuant to agrccment of the parties.

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(2) where thc mandate ofan arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.

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(3) Unless otherwise agreed by the parties, where an arbitrator is rcplaccd undcr sub-section (2), any hearings previously held may be repeated at the discretion of thc arbitral tribunal.

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(4) Unless otherwise agreed by thc parties, an order or ruling of the arbitral tribunal made prior to thc replacement of an arbitrator under this section shall not be invalid solely because there has been a changc in the composition of the arbitral tribunal.

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As discussed supra, this Cour1, referring to Clause No.23 of loan

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agreement dated 28.08.2018 allowed the said A.A.No.l29 of 2021 filed, by Applicant and appointed Arbitrator. Therefore, respondents now

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cannot claim that no notice was issued by the Applicant pursuant to withdrawal proceedings dated 24.12.2022 by leamed Arbitrator. Therefore, the said contention ofthe respondent is untenable.

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With regard to the other contention raised by the respondents that the reliefs being of recovery of the sum as lent under the Home Loan Agreement, the Applicant is bound to approach DRT, as the right to arbitrate loan agreements are non-arbitrable, in Vidya Drolia (supra), the Apex Court held that the said issue has to be considered by the leamed Arbitrator itself.

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ln Yashwith Construction P.Ltd. vs. Simplex Concrete Piles India Ltd.2, the Apex Court considered the said aspect and scope of Section 15(2) of the Act and on examination of the facts therein in paragraph Nos.4 and 5, held as under:-

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In our view, the learned Chief Justice and the Division Bench have rightly understood the scope of Section l5 of the Act. When the arbitrator originally appointed in terms o the arbitration agreement withdrew lor health reasons, the Managing Director, as authorized originally by the arbitration agreement, promptly appointed a substitute arbitrator. [t is true that in the arbitration agreement there is no specific provision authorizing the Managing Director to appoint a substitute arbitrator if the original appointment terminates or if the

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originally^{appointedarbitrator withdrawslrom the arbitration,But, thisso} called^{omissionin the arbitrationagreementis made up by the specific} provision^{containedin Section l5(2) ofthe Act. Thewithdrawalofanarbitrator} from^{the office forany reason is within the purviewof Section15(lXa) of the} Act Obviously,^{thereforeSectionl5(2) would be attracted anda substitute} arbitrator^{has to be appointed accordingto the rules that are applicable forthe} appointment^{ol the arbitrator to be replaced.Therefore,what Section I5(2)} contemplates^{is an appointmentof thesuhstitutedarbitratoror the replacingof} the arbitrator^{by another accordingto the rulesthat were applicableto the} appointment^{of theoriginal arbitrator who was being replaced. The term"rules"} in Section^{l5(2) obviouslyreferred to the provision for appointment,contained} in the^{arbitrationagreementor any Rules of any [nstitutionunder whichthe} disputes^{were relerredto arbitration. There was no failure on the partof the} concemed^{partyas per thearbitration agreement,to futfill his obligation in term} ofSection^{I I oftheAct so as to attract the jurisdiction of the ChiefJustice und} Section^{I l(6) of the Act for appointing a substitutearbitrator.Obviously,} Section^{I I (6) of the Act has applicationon ly when a partyor theconcerned} person had^{failed to act terms of the arbitrationagreement. When Section15(2)} says that^{a substitutearbitrator canbe appointed according to the rulesthat were} applicable for^{the appointmentolthe arbitrator originally,it is not confinedto} an appointment^{underany statutoryrule framed under the Act or underthe} Scheme.^It only^{means thatthe appointment the substitute arbitratormust be} done according^{to the original agreement or provisionapplicableto the} appointment^{of the arbitrator at the initial stage.We are not in position to agree} with the contrary^{viewtaken by some of the High Courts.}

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Since^here, the^{powerofthe ManagingDirector of therespondent is savedby} Section l5(2) of the Actand^{he hascxcrcisedthat power on the termsof the} arbitration agreement,^{we see no infirmityeither in the decision of the leamed}

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Chief Justice or that of the Division Bench. We do^not think^{it necessaryin this} case to go into the question whether the Writ Petition^belore the^{High Coutl} was maintainable on the basis that it challenged an order of the Chief^Justice rendered on 04.03.2005, prior to the date ofthe decision in SBP &^{Co.v. Patel} Enginecring Ltd.(supra) rendered on 26. 10.2005.

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I l. It is relevant to note that in San -A Tradubg Company

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Limited vs. I.C. Textiles Limited3 the Apex Court held as follows:-

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Sub-section (2) ol Section I I of the Act provides that in the absence of^any agreed procedure for appointment of the arbitrator or arbitrators, sub-section⁽⁶⁾ of Section I I would apply whereunder a^party may request the Chief^{Justice or} any person or institution designated by him to take necessary^{measures, unless} the agreement on the appointment procedure provides other means for securing the appointment. By virtue of sub-section (12) of Section ll, in international commercial arbitration, the reference to Chief Justice in sub-section^{(6) shall be} construed as a reference to the Chief Justice of India.

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The submission ofthe leamed counsel for the respondent that as the^named arbitrator has refused to act as an arbitrator, the arbitration^{agreement itself} comes to an end, cannot be accepted because Section l5^provides lor^{a remedy} for appointment of another arbitrator when the arbitrator appointed by^the parties as provided in the agreement refuses to act as an arbitrator. Settlement of dispute between the parties through medium of an independent^person in whom both parties repose confidence is the basic foundation on which the law of arbitration stands and is founded.

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When the agreement provides for reference of a dispute to a^particular individual and such agreed arbitrator refuses to act, the next appointment^could

1Q012)7 SCC 192

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be made as agreed by the^panies, bul^where no such^procedure is^prescribed authorising appointment of another arbitrator thcn thc agreement^clausecannot opcrate. It, therefore, follows that in case whcre the arbitration^{clause provides} for appointment of a sole arbitrator and he had refused to act, then^the agreement clause stands exhausted and then the^provisions of^Section l5^would be attracted and it would be for the Court^under Section^{l1(6) to appointan} arbitrator on the procedure laid down in Section ll(6) being followed^unless there is an agreement in the contract where the parties specifically^debar appointment ofany other arbitrator in case the named arbitrator^{refusesto act.}

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In the light of the aforesaid principle laid dou,n by the Apex Court, the principle laid down in Hemant B.Prasad vs. Perfect

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Solutionsa is not applicable to the facts ofthe present case.

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In view of the above discussion, this application is allowed.

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Accordingly Smt. Justice Kongara Vijaya Lakshmi, Former Judge, High Court of Andhra Pradesh is appointed as substitute Arbitrator in the place of Sri Justice Ramesh Ranganathan, Former Chief Justice

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of the High Court of Uttarakhand to resolve the disputes between the

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parties

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r wn@ bur w"

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sd/- B.S.CHIRANJ EVI JOINT^REGI

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/TTRUE^COPY//

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SECTION^OFFIGER