Navigating Jurisdiction: Evolving Perspectives on Section 14 of the Arbitration Act

In a previous article, we delved into the question of whether an application under Section 14 of the Arbitration Act could be filed before the District Court or the High Court. The author highlighted that the prevailing belief that such an application could only be made before the High Court or the Supreme Court is at odds with the plain interpretation of Section 2(1)(e) of the Arbitration Act. However, recent legal developments, notably the decision in Swadesh Kumar Agarwal v. Dinesh Kumar Agarwal, (2022) 10 SCC 235, indicate a shifting legal landscape on this issue.

Pre Swadesh Kumar Agarwal

In the previous article, we had discussed two decisions of the Delhi High Court, namely Raksha Vigyan Karamchari Sahkari Awas Samiti Ltd. v. Proto Developers and Technologies Pvt. Ltd., 2021 SCC OnLine Del 2731 and DDA v. Tara Chand Sumit Construction Co 2020 SCC OnLine Del 2501 which had taken the view that an application under Section 14 would be maintainable only before the High Court. The rationale behind this interpretation stemmed from potential conflicts between the powers of superior courts to appoint arbitrators under Section 11 and those of District Courts to substitute arbitrators under Section 14 and Section 29A.

Apart from the above two decisions, various other decisions of the High Courts had also taken the view that an application which results in the substitution of arbitrators would only be maintainable before the High Court, in case of Domestic Arbitration and the Supreme Court, in case of international commercial arbitration.  

In Nilesh Ramanbhai Patel v. Bhanubhai Ramanbhai Patel, (2019) 2 GLR 1537, the Gujarat High Court had held as under,

15. …. The Court on the other hand has vast powers for extension of the period even after such period is over. While doing so, the Court could also choose to substitute one or all of the arbitrators and this is where the definition of term ‘Court’ contained in Sec. 2(1) (e) does not fit. It is inconceivable that the Legislature would vest the power in the Principal Civil Judge to substitute an arbitrator who may have been appointed by the High Court or Supreme Court. Even otherwise, it would be wholly impermissible since the powers for appointment of an arbitrator when the situation so arises, vest in the High Court or the Supreme Court as the case may be in terms of sub-secs. (4), (5) and (6) of Sec. 11 of the Act. If therefore, there is a case for extension of the term of an arbitrator who has been appointed by the High Court or Supreme Court and if the contention of Shri Mehta that such an application would lie only before the Principal Civil Court is upheld, powers under sub-sec. (6) of Sec. 29A would be non-operatable. In such a situation, sub-sec. (6) of Sec. 29A would be rendered otiose. The powers under sub-sec. (6) of Sec. 29A are of considerable significance. The powers for extending the mandate of an arbitrator are coupled with the power to substitute an arbitrator. These powers of substitution of an arbitrator are thus concomitant to the principal powers for granting an extension. If for valid reasons the Court finds that it is a fit case for extending the mandate of the arbitrator but that by itself may not be sufficient to bring about an early end to the arbitral proceedings, the Court may also consider substituting the existing arbitrator. It would be wholly incumbent to hold that under sub-sec. (6) of Sec. 29A the Legislature has vested powers in the Civil Court to make appointment of arbitrators by substituting an arbitrator or the whole panel of arbitrators appointed by the High Court under Sec. 11 of the Act. If we, therefore, accept this contention of Shri Mehta, it would lead to irreconcilable conflict between the power of the superior Courts to appoint arbitrators under Sec. 11 of the Act and those of the Civil Court to substitute such arbitrators under Sec. 29A(6). This conflict can be avoided only by understanding the term “Court” for the purpose of Sec. 29A as the Court which appointed the arbitrator in case of Court constituted Arbitral Tribunal.

Similarly, in Cabra Instalaciones Y. Services. S.A. v. Maharashtra State Electricity Distribution Company Limited, 2019 SCC OnLine Bom 1437, the Bombay High Court had taken a view that in cases of international commercial arbitration where an application under Section 11 has to be made before the Supreme Court, the High Court has no power under Section 29A to substitute such an arbitrator and such power would lie exclusively with the Supreme Court. The relevant portions of this judgment are as under,

7. On a plain reading of Section 29A alongwith its subsections, it can be seen that for seeking extension of the mandate of an arbitral tribunal, these are substantive powers which are conferred on the Court and more particularly in view of the clear provisions of sub-section (6) which provides that while extending the period referred to in sub-section (4), it would be open to the Court to substitute one or all the arbitrators, which is in fact a power to make appointment of a new/substitute arbitrator or any member of the arbitral tribunal. Thus certainly when the arbitration in question is an international commercial arbitration as defined under Section 2(1)(f) of the Act, the High Court exercising power under Section 29A, cannot make an appointment of a substitute arbitral tribunal or any member of the arbitral tribunal as prescribed under sub-section (6) of Section 29-A, as it would be the exclusive power and jurisdiction of the Supreme Court considering the provisions of Section 11(5) read with Section 11(9) as also Sections 14 and 15 of the Act. It also cannot be overlooked that in a given case there is likelihood of an opposition to an extension application and the opposing party may pray for appointment of a substitute arbitral tribunal, requiring the Court to exercise powers under sub-section (6) of Section 29-A. In such a situation while appointing a substitute arbitral tribunal, when the arbitration is an international commercial arbitration, Section 11(9) would certainly come into play, which confers exclusive jurisdiction on the Supreme Court to appoint an arbitral tribunal.

8. Thus, as in the present case once the arbitral tribunal was appointed by the Supreme Court exercising powers under Section 11(5) read with Section 11(9) of the Act, in my opinion, this Court lacks jurisdiction to pass any orders under Section 29-A of the Act, considering the statutory scheme of Section 29-A. It would only be the jurisdiction of the Supreme Court to pass orders on such application under Section 29-A of the Act when the arbitration is an international commercial arbitration. The insistence on the part of the petitioner that considering the provisions of sub-section (4), the High Court would be the appropriate Court to extend the mandate of the arbitral tribunal under Section 29-A, would not be a correct reading of Section 29A as the provision is required to be read in its entirety and in conjunction with Section 11(9) of the Act

The Kerala High Court had also taken a similar view in Lots Shipping Company Limited v. Cochin Port Trust Board of Trustees, AIR 2020 Ker 169 as under,

9. Question to be decided is whether the term “court” contained in Section 29A(4) requires a contextual interpretation apart from the meaning contained in Section 2(1)(e)(i) of the Act. A contextual interpretation is clearly permissible in view of the rider contained in sub-section (1) of Section (2), “unless the context otherwise requires”. As argued by the counsel on either side and as submitted by the learned Amicus Curiae, a contextual interpretation is required since the power conferred on the court under Section 29A, especially under sub-sections (4) and (5), are more akin to the powers conferred on the Supreme Court and the High Court, as the case may be, under Sections 11(6), 14 & 15 of the Act, for appointment, termination of mandate and substitution of the arbitrator. It is pointed out that, the amendments introduced in the year 2015, with effect from 23.10.2015, has recognized the judgment of the Constitutional Bench of the apex court in SBP & Company v. Patel Engineering Company Ltd., (2005) 8 SCC 618 and conferred the power of appointment on the Supreme Court or the High Court. The amendment has not in any manner enhanced the power of the principal civil court, which continues only with respect to matters provided under Sections 9 and 34 of the Act. It is significant to note that the orders passed by the principal civil court of original jurisdiction under Sections 9 and 34 are made appealable under Section 37 of the Act. So also, order if any passed refusing to refer the parties to arbitration under Section 8 of the Act, was also made appealable under Section 37(1)(a) of the Act. Section 29A was introduced to make it clear that, if the arbitration proceedings is not concluded within 18 months, even if the parties have consented for an extension, it cannot be continued unless a judicial sanction is obtained. The power to grant extension by the court is introduced under an integrated scheme which also allows the court to reduce the fees of the arbitrator or to impose cost on the parties and/or to substitute the arbitrator(s). The power of extension is to be exercised on satisfying “sufficient cause’ being made out. In all respect, such power conferred under Section 29A for permitting extension with respect to the proceedings of arbitration, is clearly akin to the powers conferred under Sections 14 & 15 of the Act. The absence of any provision for an appeal with respect to the exercise of such power under Section 29A, in the nature as mentioned above, would indicate that the power under Section 29A is not to be exercised by the principal civil court of original jurisdiction. Otherwise, it will create anomalous situation of identical powers being exercised in a contrary manner, prejudicial to the hierarchy of the courts. In a case where appointment of an arbitrator is made under Section 11(6) of the Act by the High Court or the Supreme Court, as the case may be, it would be incongruous for the principal civil court of original jurisdiction to substitute such an arbitrator or to refuse extension of the time limit as provided under Section 29A, or to make a reduction in the fees of the Arbitrator. Therefore, a purposive interpretation becomes more inevitable.

The Allahabad High Court while dealing with a similar issue remarked in Lucknow Agencies v. U.P. Avas Vikas Parishad, 2019 OnLine ADJ 0169 as under,

34. Thus, the power to substitute the arbitrator as mandated in sub-section (6) of Section 29A vest only with the Court. This provision cannot be read in isolation but with Section 11, which provides for appointment of arbitrator.

35. Once the appointment of arbitrator or arbitral Tribunal has been made by the High Court or the Supreme Court exercising power under sub-sections (4), (5) and (6) of Section 11 then the power to substitute the arbitrator or the Arbitral Tribunal only vest with the said appointing authority i.e. High Court or Supreme Court, as the case may be.

36. The argument raised from the side opposite that the word ‘Court’ occurring in Section 2(1)(e) means the principal Civil Court and not the High Court cannot be accepted, as once the appointment was made by the High Court exercising power under Section 11, the power to substitute an arbitrator cannot vest under sub-section (6) of Section 29A with the principal Civil Court.

Finally, the Calcutta High Court while dealing with this decision in Amit Kumar Gupta v. Dipak Prasad, 2021 SCC OnLine Cal 2174 also took a similar view as under,

“17. The meaning of the word “court” as ascribed in Section 2(1)(e) of the Act of 1996 is subject to the requirement of the context. In the context of Section 29A of the Act of 1996 which has prescribed a substantive provision for completion of the arbitral award and the time limit to do so, the meaning of the word “court” as used therein has to be understood. Under sub-section (6) of Section 29A of the Act of 1996, the Court has been empowered to substitute the arbitrator or the arbitrators in reconstituting the arbitral tribunal if so required. The power of appointment of an arbitral tribunal has been prescribed in Section 11 of the Act of 1996. Section 11 of the Act of 1996 has prescribed two appointing authorities given the nature of the arbitration. In the case of an international commercial arbitration, the authority to appoint an arbitrator, has been prescribed under Section 11 of the Act of 1996 to be the Supreme Court. In the case of a domestic arbitration, Section 11 of the Act of 1996 has prescribed that the appointing authority shall be the High Court.

18. In my view, the word “court” used in Section 29A of the Act of 1996 partakes the character of the appointing authority as has been prescribed in Section 11 of the Act of 1996 as, the Court exercising jurisdiction under Section 29A of the Act of 1996 may be required to substitute the arbitrator in a given case. Such right of substituting can be exercised by a Court which has the power to appoint. The power to appoint has been prescribed in Section 11. Therefore, the power to substitute should be read in the context of the power of appointment under Section 11

Swadesh Kumar Agarwal v. Dinesh Kumar Agarwal, (2022) 10 SCC 235 – A perceptible change in Law

The decision in Swadesh Kumar Agarwal v. Dinesh Kumar Agarwal, (2022) 10 SCC 235, suggests a shift in the legal landscape. In this case, the parties had filed applications under Section 14(1)(a) of the 1996 Act before the District court concerned to terminate the mandate of the sole arbitrator on the ground of delay in concluding the arbitration proceedings. The other party had filed objections to the application under Section 14, which had been dismissed by the District Court. Aggrieved by the orders of dismissal, the parties had preferred a writ petition before the Hon’ble High Court[1].

Furthermore, during the pendency of the Section 14 application before the District Judge, one of the parties had filed an application for appointment of arbitrator under Section 11 of the arbitration act, and in that application had specifically requested to terminate the mandate of the sole arbitrator and to appoint a fresh arbitrator[2].

While hearing a Special Leave Petition against the decision of the High Court, the Division Bench of the Supreme Court framed the following six issues:

(i) Whether the High Court in exercise of powers under Section 11(6) of the 1996 Act, can terminate the mandate of the sole arbitrator?

(ii) Whether in the absence of any written contract containing the arbitration agreement, the application under Section 11(6) of the 1996 Act would be maintainable?

(iii) Is there any difference and distinction between sub-section (5) of Section 11 and sub-section (6) of Section 11 of the 1996 Act?

(iv) Whether the application under sub-section (6) of Section 11 shall be maintainable in a case where the parties themselves appointed a sole arbitrator with mutual consent?

(v) Whether in the facts and circumstances of the case the High Court was justified in terminating the mandate of the sole arbitrator on the ground that there was undue delay on the part of the sole arbitrator in concluding the arbitration proceedings which would lead to the termination of his mandate, in an application under Section 11(6) of the 1996 Act?

(vi) Whether in the facts and circumstances of the case, the learned trial court was justified in dismissing the application submitted by the appellant, submitted to reject the application under Section 14(2) of the 1996 Act in exercise of powers under Order 7 Rule 11CPC?

While dealing with the scheme emerging from sections 13, 14 and 15 of the arbitration act, the Hon’ble Supreme Court went on to make the following observations,

21. Therefore, on a conjoint reading of Sections 13, 14 and 15 of the Act, if the challenge to the arbitrator is made on any of the grounds mentioned in Section 12 of the Act, the party aggrieved has to submit an appropriate application before the Arbitral Tribunal itself. However, in case of any of the eventualities mentioned in Section 14(1)(a) of the 1996 Act and the mandate of the arbitrator is sought to be terminated on the ground that the sole arbitrator has become de jure and/or de facto unable to perform his functions or for other reasons fails to act without undue delay, the aggrieved party has to approach the “court” concerned as defined under Section 2(1)(e) of the 1996 Act. The court concerned has to adjudicate on whether, in fact, the sole arbitrator/arbitrators has/have become de jure and de facto unable to perform his/their functions or for other reasons he fails to act without undue delay. The reason why such a dispute is to be raised before the court is that eventualities mentioned in Section 14(1)(a) can be said to be a disqualification of the sole arbitrator and therefore, such a dispute/controversy will have to be adjudicated before the court concerned as provided under Section 14(2) of the 1996 Act.

An examination of the aforementioned remarks reveals that the Hon’ble Supreme Court elucidated that an application under Section 14 would be admissible before the court as delineated in Section 2(1)(e).  

While it may be argued that the observations of the Supreme Court are in the nature of obiter dicta since none of the issues specifically dealt with the maintainability of the application under Section 14 is maintainable before the District Judge, it would be useful to remember that even the obiter of the Hon’ble Supreme Court would certainly be binding on the various High Courts[3].

Post Swadesh Kumar Agarwal – View of the High Courts

Subsequent to the Swadesh Kumar Agarwal decision, various High Courts have acknowledged the shift in legal stance. In National Highways Authority of India v. Third Rock Consultants (P) Ltd., 2023 SCC OnLine Del 444, a single judge of the Delhi High Court expressly rejected the argument that an application under Section 14 of the Arbitration Act is not maintainable before the District Court citing the decision of Swadesh Kumar Agarwal (supra) as under,

12. Mr. Bishnoi contends that the question raised by him here, namely, whether the High Court alone can consider a petition under Section 14 of the Act, did not arise for consideration before the Supreme Court in Swadesh Kumar Agarwal. Although the questions formulated by the Court in paragraph 9 of the judgment do not expressly contain a question to this effect, it is evident from the extracts quoted above that the Supreme Court has considered the question of jurisdiction under Section 14(2) of the Act, and expressly held that the Court under Section 2(1)(e) of the Act can entertain such a petition.

14. I find this submission of Mr. Bishnoi entirely unmerited. While the definitions in Section 2(1)(e) do, to some extent, depart from the rules of pecuniary jurisdiction applicable to suits, the concept is not jettisoned altogether. At least in the context of arbitrations other than international commercial arbitration, Section 2(1)(e)(i) vests jurisdiction in the principal civil courts of original jurisdiction as well as in High Courts which exercise ordinary original civil jurisdiction, where applicable. The question of whether a particular case to be filed in one or the other of these two courts, is answered by the qualifying phrase, “…having jurisdiction to decide the question forming the subject-matter of the arbitration if the same had been the subject matter of a suit…”. This answer must, in my view, be determined with reference both to aspects of territorial and pecuniary jurisdictions. I am unable to find any textual or contextual justification to hold that all proceedings under the Act must be exercised by the High Court, if the High Court has ordinary original civil jurisdiction, even if the value of the dispute falls below the pecuniary jurisdiction of the High Court.

The issue has also been considered in detail by the Calcutta High Court in Gammon Engineers & Contractors (P) Ltd. v. State of W.B., 2023 SCC OnLine Cal 2326. While dealing with the decision of the Swadesh Kumar Agarwal (supra), the Calcutta High Court specifically held that the court would mean the District Judge at Jalpaiguri. The relevant observations are as under,

21. The ratio of the judgment in Swadesh Kumar Agarwal (supra) must be kept in mind, wherein the court has categorically held in paragraph 32 that once an appointment is made under Section 11, the arbitration agreement cannot be invoked for the second time under Section 11. The procedure prescribed in the Act for termination of an arbitral tribunal's mandate is as per Sections 14 and 15 of the Act. The argument raised by the petitioner that a petition can be filed under Section 14 read with Section 15 and Section 11(6) is an argument in sophistry and is superfluous. This is quite evident from the ratio of the judgment in Swadesh Kumar Agarwal (supra), which has been specifically delineated in paragraph 32 of the said judgment and pointed out by me in the preceding paragraphs. In the present case, a Section 9 application was already made to the District Judge at Jalpaiguri, which is, for all purposes, the ‘court’ under Section 2(1)(e) of the Act. Therefore, the bar under Section 42 would lie and all applications to be made to a ‘court’ must be made to the District Judge at Jalpaiguri. An application under Section 14(1)(a) for termination of an arbitrator's mandate, being required to be made before a ‘court’ as under Section 2(1)(e) and 42 of the Act, has to presented before the District Judge at Jalpaiguri. In light of the above, A.P. 785 of 2022 is disposed of for not being maintainable before the High Court at this stage. I make it clear that the findings with regard to merits of the case in the preceding paragraphs are tentative in nature and the appropriate court shall decide the Section 14 application in accordance with law

Conclusion:

In conclusion, the Swadesh Kumar Agarwal (supra) decision has brought about clarity in the interpretation of Section 14 of the Arbitration Act. While the legal landscape continues to evolve, it is evident that recent developments have unsettled earlier views of the High Courts, which may now be considered impliedly overruled. This decision contributes to ensuring consistency and predictability in arbitration proceedings and underscores the need for a nuanced understanding of arbitration law. It is hoped that the Supreme Court will further elucidate and affirm this position, providing additional guidance and solidifying the evolving legal framework surrounding arbitration law. 

References

[1] Para 3, Swadesh Kumar Agarwal v. Dinesh Kumar Agarwal, (2022) 10 SCC 235

[2] Para 4, Swadesh Kumar Agarwal v. Dinesh Kumar Agarwal, (2022) 10 SCC 235

[3] Para 26, Oriental Insurance Co. Ltd. v. Meena Variyal, (2007) 5 SCC 428; Para 11, Peerless General Finance & Investment Co. Ltd. v. CIT, (2020) 18 SCC 625; Para 76, Secundrabad Club v. CIT, 2023 SCC OnLine SC 1004