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for Arbitrator Appointment Not Based on Days After Notice, Says
Introduction: A Significant Ruling on the Timelines of Arbitrator Appointment
The has delivered a crucial clarification on the interpretation of "" under . In a dispute between family members over a partnership firm, Justice Om Prakash Shukla ruled that a court assessing whether the appointment procedure has failed must look beyond the mere counting of days after a formal arbitration notice. The judgment emphasizes that prior proceedings, , and earlier attempts to mutually agree on an arbitrator are all relevant factors.
The court rejected a raised by the respondents and appointed former judge Justice (Retd.) Ravindra Bhatt as the sole arbitrator to adjudicate the disputes between Sugat Jain and his co-partner Amit Jain concerning the partnership firm .
Case Background: A Family Partnership Turns Sour
is a partnership firm governed by a Partnership Deed dated . The petitioner, Sugat Jain, holds a 50% share, while respondents Amit Jain and another family member each hold 25%. The firm is part of a group of family-held businesses. As part of financial arrangements, properties of the partnership were used as collateral security for credit facilities availed by another family entity, —a security arrangement that had been in place since 2013.
Disputes arose between the partners over the management and financial records of the firm. Sugat Jain alleged that he was denied access to financial records. The conflict escalated in when Amit Jain sought to discontinue the cross-mortgaging arrangement and release the partnership's properties from the collateral. Sugat objected, but Amit proceeded to communicate with in and again in , seeking the release of properties. On , PNB informed Sugat that the credit facilities could not be renewed due to Amit's communication.
Procedural Journey: From Section 9 to Mediation to Section 11
In , Sugat approached the High Court under seeking to prevent the respondents from unilaterally altering the security arrangement. The court referred the parties to mediation at the Mediation and Conciliation Centre, SAMADHAN, on . Mediation sessions were held on July 30, August 10, and August 13, but no settlement was reached.
On —the day the mediation failed—Sugat proposed that the parties mutually appoint a sole arbitrator in accordance with Clause 14 of the Partnership Deed. The respondents did not agree to the proposal. Sugat then formally invoked arbitration by issuing a notice under on . Even thereafter, the parties attempted to agree on an arbitrator; the respondents suggested a name that was not acceptable to Sugat. No consensus was reached.
The : Respondents’ Argument
When Sugat filed the petition under Section 11(6) seeking the court's appointment of an arbitrator, the respondents opposed it on the ground that it was premature. They argued that the formal notice under Section 21 had only been served on , and they had neither proposed an arbitrator nor refused to make an appointment pursuant to that notice. They contended that the occasion for invoking Section 11(6) had not yet arisen, and the court should wait for a reasonable period to elapse.
Court’s Analysis: in Context
Justice Shukla began by noting the narrow scope of examination at the , which is limited to the existence of an . Since Clause 14 of the Partnership Deed clearly contained an , that requirement was satisfied.
Turning to the , the court observed that Section 11(6) does not prescribe a fixed statutory period, unlike which provide for a 30-day period. The key question was whether the agreed procedure— under Clause 14—had failed. The court quoted the 's decision in
, which held that
"
as per the agreed procedure within the time-limit prescribed by the
, or in the absence of any prescribed time-limit, within a
, will enable the aggrieved party to file a petition under Section 11(6)."
The court emphasized that
"what constitutes a
must necessarily depend upon the facts and circumstances of each case. It cannot be determined by mechanically counting the number of days elapsed after the formal notice under Section 21 is sent."
It noted that the parties had already been engaged in court proceedings, mediation, and discussions concerning appointment, and those circumstances must be taken into account.
The court also rejected the argument that an
was required, holding:
"The relevant enquiry is not whether an
was committed, but whether the agreed procedure resulted in the
."
Since the respondents never agreed on any name, the procedure had failed.
Key Observations from the Judgment
Justice Shukla made several pivotal observations:
"Where the parties had already been engaged in disputes, court proceedings, mediation and discussion concerning appointment of an Arbitrator, those circumstances must legitimately be taken into account while considering whether the has failed."
"Acceptance of such a contention would permit a party, by its own inaction, to defer the and thereby defeat the purpose of Section 11(6) of the Act."
"Having regard to the prior proceedings, including the , the attempts to mutually appoint an Arbitrator and the absence of any subsequent positive step towards an agreed appointment, this Court is satisfied that the Respondents had been afforded a to act in terms of Clause 14."
Final Decision: Arbitrator Appointed, Section 9 Petition to Continue
The court rejected the and appointed Hon’ble Mr. Justice (Retd.) Ravindra Bhatt , former judge, as the sole arbitrator to adjudicate the disputes between the parties. The arbitration will be conducted under the aegis of the , with fees as per the DIAC schedule. The arbitrator is directed to enter upon the reference within two weeks and furnish the required disclosures under within three weeks.
In a practical move, the court also disposed of Sugat’s pending Section 9 petition by directing that it be treated as an application under , to be decided by the newly appointed arbitrator. The parties are directed to approach the arbitrator within two weeks.
This ruling serves as a significant clarification for practitioners: a petition under Section 11(6) may be maintainable even shortly after a Section 21 notice, provided the pre-notice conduct of the parties demonstrates that a has already been afforded and the agreed procedure has failed.
