Telangana High Court
M/S. Chennai Best Blue Metals vs Sri Sarvepalli Vijay Sekhar on 9 June, 2025
* THE HONOURABLE SRI JUSTICE N.V. SHRAVAN KUMAR
+ARBITRATION APPLICATION No.30 of 2024
% Dated 09-06-2025
Between:
# M/s. Chennai Best Blue Metals & Another
... Petitioner
and
$ Sri Sarvepalli Vijay Sekhar,
.... Respondent
! Counsel for the Petitioner : Mr. P.S. Rajasekhar
^ Counsel for the respondents : Doddala Achala Siri
< GIST : ---
>HEAD NOTE : ---
? Cases referred: :
1. (2016) 3 Supreme Court Cases 619
2. MANU/WB/1306/2009
3. (2009) 10 Supreme Court Cases 293
4. MANU/UP/0190/2017
5. (2006) 6 SCC 204
6. (2006) 10 Supreme Court Cases 763
7. (2016) 1 SCC 721
8. (2018) 4 ALT 430
9. 2023 SCC OnLine Cal 648
10. 1979 SCC OnLine Ori 51
11. 2019 SCC OnLine Bom 3920
12. 2000 SCC OnLine Bom 670
2 NVSK, J
Arbitration Application No.30_2024
THE HONOURABLE SRI JUSTICE N.V. SHRAVAN KUMAR
Arbitration Application No.30 of 2024
ORDER:
This Arbitration Application has been filed under Section 11(6) read with Section 15(2) of the Arbitration and Conciliation Act, 1996, (for short 'the Act') seeking for an appointment of substitute Arbitrator for applicants and the respondent to adjudicate claims/disputes arose between the parties.
2. Brief facts as stated in the Arbitration Application are that the Applicant No.1 M/s.Chennai Best Blue Metals, is a partnership Firm, represented by its partner Smt.Sarvepalli Praveena. Applicant No.2 is Smt.Sarvepalli Praveena W/o.Sarvepally Vijay Sekhar. The sole respondent is Sarvepalli Vijay Sekhar.
3. The Applicant and the respondent are partners in the Applicant No.1 Firm vide Partnership Deed dated 03.03.2012 bearing registration No.672 of 2012 registered with the Registrar of Firms, Hyderabad South. The Applicant No.1 Firm is engaged in the business of mines and quarries. The profit and loss sharing ratio of the Applicant No.2 and the Respondent in the Applicant No.1 Firm is 40% and 60%, respectively.
4. The Applicant No.1 Firm earlier was granted various mining leases by the then Government of Andhra Pradesh vide Proceedings
(i) No.2957/TQL/2012, dated 01.09.2012, which is valid up to 3 NVSK, J Arbitration Application No.30_2024 24.03.2025, (ii) No.2960/TQL/2012 dated 01.09.2012 valid up to 24.09.2024, (iii) No.2958/TQL/2012 dated 01.09.2012 valid up to 01.05.2024, (iv) No.4427/Part surrender/CTR/2013 dated 07.12.2013 valid up to 24.09.2024. All the proceedings will be referred to as 'The mining leases'.
5. Applicant No.2 and the respondent are also partners in other Firms namely M/s. Seven Hills Enterprises in which the respondent has 60% share and the Applicant No.2 has 40% and M/s. Seven Hills Sand Factory LLP in which the respondent has 90% share and the Applicant No.2 has 10% share. The respondent had also instituted arbitration proceedings in respect of the said Firms.
6. Applicant No.2 would submit that as the respondent is her husband, she placed complete trust in him for managing the affairs of the Firms and respondent has complete control of the business. Later, the Applicant No.2 came to know that the respondent had forged the signature of the Applicant No.2 and brought into existence two Amendment Deeds dated 22.11.2016 reducing the share of the Applicant No.2 from 40% to 1% in the Applicant No.1 Firm and also in M/s. Seven Hills Enterprises.
7. It is further submitted that the second and third entities are exclusively owned by the Applicant No.2 and are outside the scope of arbitration instituted by the respondent. The Applicant No.2 submits that since 03.03.2012 till date, the respondent has neither disclosed 4 NVSK, J Arbitration Application No.30_2024 the quantum of business done by the Applicant No.1 Firm nor has paid her share of profit from the sale of minerals to various entities by operating in the mining leases. Therefore, the respondent was called upon to render true and proper accounts of the Applicant No.1 Firm from 03.03.2012 onwards and pay her share of 40% and that the dispute between the parties with respect to the accounts and profits of the Applicant No.1 Firm remains unresolved till date.
8. The respondent has initiated the arbitration proceedings with respect to M/s. Seven Hills Enterprises and M/s. Seven Hills Sand Factory LLP vide notice of invocation dated 12.01.2023 and has appointed Justice Kongara Vijayalakshmi (Retd) to arbitrate the disputes and the same was accepted by the Applicant No.2 vide reply dated 17.01.2023. Both the matters vide Arbitration Case No.1 of 2023 and 2 of 2023 are pending. Thereafter, the Applicants have invoked arbitration vide notice dated 17.05.2023 as contemplated under Section 21 of the Act for resolving the disputes arising out of partnership deed dated 03.03.2012 in relation to the Applicant No.1 Firm. It is further submitted that the respondent has neither given consent for appointment of Justice Kongara Vijayalakshmi (Retd) to arbitrate the disputes arising out of Partnership Deed dated 03.03.2012 nor issued any reply to that extent. Thereafter, Applicants filed Arbitration Application before this Court under Section 11(6) of the Act for appointment of Arbitrator. After receiving notice in the said application, the respondent issued a reply notice dated 5 NVSK, J Arbitration Application No.30_2024 01.11.2023 giving his consent for appointment of Justice Kongara Vijayalakshmi (Retd) to arbitrate the disputes arising out of Partnership Deed dated 03.03.2012. It is also submitted that the Applicant No.2 had issued notice of dissolution dated 06.11.2023 for dissolution of Applicant No.1 Firm M/s. Chennai Best Blue Metals and the Applicant No.1 Firm stands dissolved with effect from 06.11.2023. In view of the consensus arrived at between the parties, this Court vide its order dated 24.11.2023 in Arbitration Application No.179 of 2023 appointed Justice Kongara Vijayalakshmi (Retd) as sole Arbitrator to adjudicate the disputes between the parties. As per the order of this Court, the parties appeared before the Arbitral Tribunal and the Applicants filed Written Statement of reasons for challenge to the Arbitral Tribunal under Section 12 and 13 of the Act in Arbitration Case No.3 of 2023 along with the other two arbitration proceedings. The respondent has also filed objections in the said applications. Thereafter, vide Procedural Order dated 26.01.2024, the Arbitral Tribunal recused itself from all the three arbitrations including Arbitration Case No.3 of 2023. Thereafter, the respondent filed a petition under Section 9 of the Act being C.O.P. No.6 of 2024 on the file of the Special Court in the cadre of District Judge for trial and disposal of Commercial Disputes, City Civil Court, Hyderabad. In the said circumstances, the Applicant No.2 has filed the present application seeking for an appointment of substituted Arbitrator.
6 NVSK, J Arbitration Application No.30_2024
9. On behalf of the respondent, while denying the application averments, counter affidavit has been filed.
10. Thereafter, while reiterating the application averments, the Applicant filed reply affidavit.
SUBMISSIONS:
11. The learned counsel appearing for the Applicants would submit that Section 15 of the Arbitration and Conciliation Act, 1996 provides for appointment of substitute arbitrator. Hence, this Court has ample power to appoint a substitute arbitrator. In support of this submission, reliance was placed in the case of Shailesh Dhairyawan Vs. Mohan Balkrishna Lulla 1 and Ramjee Power Construction Ltd., Vs. Damodar Valley Corporation 2.
12. Learned counsel would further submit that 'Rules of appointment' contemplated under Section 15 include the agreement between the parties and unless the agreement provides for appointment of substitute arbitrator, there is no requirement of issuing notice of appointment of substitute arbitrator as the partnership agreement does not provide for appointment of substitute arbitrator. In support of his submissions reliance was placed in the case of S.B.P. and Company Vs. Patel Engineering Limited and 1 (2016) 3 Supreme Court Cases 619 2 MANU/WB/1306/2009 7 NVSK, J Arbitration Application No.30_2024 another 3 and Tirath Ram Sumer Kumar Vs. Rakesh Kumar Mishra and Others 4.
13. Learned counsel further submits that the Applicant No.2 had represented the Applicant No.1 in Arbitration Application 179 of 2023 and the respondent has not taken any objection for the same, therefore is now estopped from taking such objection in an Application for appointment of substitute arbitrator. Learned counsel further submits that the contention of the 2nd Applicant is estopped from representing the Firm in view of the Section 19 of the Partnership Act, 1932 is liable to be rejected as the same is part of Chapter 4 of the Act which deals with relation with third parties and thus is not applicable to inter se disputes between parties in view of Clause 19 of the partnership agreement.
Brief factual background & details of events submitted by respondent counsel:
14. The learned Senior Counsel P.Vikram appearing for the respondent would submit that the respondent and Applicant No.2 are husband and wife, having gotten married in 2003. Respondent is a mining Engineer by qualification and is engaged in the business of mining/quarrying stone. Together, the parties have set up several entities for running their business. M/s. Chennai Best Blue Metals (Applicant No.1/Firm) is one of the partnership firms incorporated by 3 (2009) 10 Supreme Court Cases 293 4 MANU/UP/0190/2017 8 NVSK, J Arbitration Application No.30_2024 the parties, vide a partnership deed dated 03.03.2012 and the firm is registered with the Registrar of Firms. The parties have a profit- sharing ratio of 60:40. The Firm holds four quarry licenses issued by the Government of Andhra Pradesh for mining of road metal and building stones in the year 2012. However, certain marital disputes arose between the parties, resulting in the respondent filing a petition before the family Court seeking a decree of divorce, which is pending adjudication.
15. It is submitted that on 17.05.2023 notice of invocation of arbitration was issued by Applicant No.2 under Clause 19 of the partnership deed for adjudication of alleged disputes in relation to accounts of the firm. Applicant No.2 nominated Justice Smt. K.Vijayalakshmi (Retd.,) who is already the sole arbitrator in pending arbitration matters for two other partnership firms set up by the parties, as the sole arbitrator for this dispute as well. On 03.10.2023 Applicant No.2 filed Arbitration Application No.179 of 2023 under Section 11 of the Arbitration and Conciliation Act, 1996 before this Court. On 01.11.2023 respondent issued a reply accepting Justice Smt. K.Vijayalakshmi (Retd.,) as the sole arbitrator. On 06.11.2023, a notice of dissolution was issued by Applicant No.2 purporting to dissolve the firm. On 24.11.2023, in view of consensus arrived at between the parties regarding the appointment of arbitrator, Arbitration Application No.179 of 2023 was disposed of. On 06.12.2023 respondent had addressed a reply disputing the 9 NVSK, J Arbitration Application No.30_2024 purported dissolution and on 27.12.2023 respondent had filed an application under Section 16 of the Act challenging the jurisdiction of the Tribunal.
16. It is further submitted that the issuance of the notice of invocation on behalf of the firm by Applicant No.2 is devoid of any authority and is in direct contravention to Clause 8(g) of the partnership deed and Section 19(2)(a) of the Indian Partnership Act, 1932. Hearing on maintainability of Section 16 application took place on 27.12.2023, 04.01.2023 and 06.01.2023 before the Tribunal in Arbitration Case No.3 of 2023. During the hearing on 04.01.2023, Applicant No.2 had also filed a memo conceding that she does not have any authority to represent the firm. Thereafter, the Arbitration Case No.3 of 2023 was posed to 27.01.2024 for a final hearing on the maintainability of the Section 16 Application. On 24.01.2024 Applicant No.2 filed a challenge under Sections 12 and 13 of the Act, seeking the Arbitrator's withdrawal from Arbitration Case No.3 of 2023. On 26.01.2024 respondent filed written objections. Despite the written objections, the Arbitrator had passed a procedural order dated 26.01.2024 informing all the parties about the recusal from Arbitration Case No.3 of 2023. Thereafter, on 29.01.2024, respondent filed COP. No.6 of 2024 under Section 9 of the Arbitration and Conciliation Act, 1996 seeking interim reliefs regarding the purported dissolution of the applicant No.1 firm, the said petition is currently pending adjudication before the Commercial Court in Hyderabad.
10 NVSK, J Arbitration Application No.30_2024 Thereafter, on 13.02.2024, in response to the respondent's COP, Applicant No.2 filed the present Arbitration Application without proposing a substitute arbitrator to adjudicate the disputes mentioned in the notice of invocation dated 17.05.2023. On 07.03.2024, respondent issued a notice of invocation of arbitration for adjudication of disputes in relation to purported dissolution and consequently for appointment of substitute arbitrator and the respondent nominated Sri Justice Rajasheker Reddy (Retd.,) as the sole arbitrator. On 26.03.2024, Applicant No.2 issued reply and disagreed with appointment of Sri Justice Rajasheker Reddy (Retd.,).
17. The learned senior counsel would further submit that the present Arbitration Application is not maintainable for the reason that the jurisdiction of the Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 can only be invoked if the respondent fails to appoint a substitute arbitrator under Section 15 following a specific request from the Applicant No.2, which did not occur in the present case and that the Applicant No.2 lacks the authority to initiate or file proceedings on behalf of Applicant No.1 Firm or to represent Applicant No.1 Firm in any proceedings. The learned senior counsel draws attention of this Court to the Section 15 of the Arbitration and Conciliation Act, 1996, which stipulates that "Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced" and further submits that on a bare perusal 11 NVSK, J Arbitration Application No.30_2024 of Section 11(5) of the Act, it is evident that in an arbitration with a sole arbitrator, a party desirous of appointing the arbitrator must make a request to the other party to agree for appointment within 30 days from receipt of the request, failing which the appointment shall be made by the Chief Justice or his designate, upon request of a party and the said rules are also applicable to the appointment of substitute arbitrator in the present case as per Section 15(2) of the Act. Learned senior counsel further submits that on a conjoint reading of Section 11(5) and Section 15(2) of the 1996 Act, the jurisdiction conferred on the High Court to appoint a substitute arbitrator, in the place of the arbitrator whose mandate stood terminated, is only if the parties fail to agree on the appointment of a substitute arbitrator within thirty days from the date of receipt of a request by one party from the other party to so agree. To buttress his submission, learned senior counsel placed reliance in the case of Yashwith Constructions (P) Ltd. Vs. Simplex Concrete Piles India Ltd., 5 and referred to the relevant para No.4 reads as under:
"....The withdrawal of an arbitrator from the office for any reason is within the purview of Section 15(1)(a) of the Act. Obviously, therefore, Section 15(2) would be attracted and a substitute arbitrator has to be appointed according to the rules that are applicable for the appointment of the arbitrator to be replaced. Therefore, what Section 15(2) contemplates is an appointment of the substituted arbitrator or the replacing of the 5 (2006) 6 SCC 204
12 NVSK, J Arbitration Application No.30_2024 arbitrator by another according to the rules that were applicable to the appointment of the original arbitrator who was being replaced. The term "rules" in Section 15(2) obviously referred to the provision for appointment contained in the arbitration agreement or any rules of any institution under which the disputes were referred to arbitration. There was no failure on the part of the party concerned as per the arbitration agreement, to fulfil his obligation in terms of Section 11 of the Act so as to attract the jurisdiction of the Chief Justice under Section 11(6) of the Act for appointing a substitute arbitrator. Obviously, Section 11(6) of the Act has application only when a party or the person concerned had failed to act in terms of the arbitration agreement. When Section 15(2) says that a substitute arbitrator can be appointed according to the rules that were applicable for the appointment of the arbitrator originally, it is not confined to an appointment under any statutory rule or rule framed under the Act or under the scheme. It only means that the appointment of the substitute arbitrator must be done according to the original agreement or provision applicable to the appointment of the arbitrator at the initial stage. We are not in a position to agree with the contrary view taken by some of the High Courts.
18. The learned senior counsel submits that invocation of Section 11(6) is based on a default of a party. The question arising for consideration here is who had defaulted and on what basis of default has the Court entered jurisdiction under Section 11(6). In this regard, he placed reliance in the case of National Highways Authority of 13 NVSK, J Arbitration Application No.30_2024 India and another Vs. Bumihiway DDB Limited (JV) and others 6 and refers to paras No.34 and 44 are extracted for reference.
"34. In our view, the invocation of Section 11(6) of the Arbitration and Conciliation Act, 1996 is squarely based on a default of a party. The ratio laid down in Datar Switchgears Ltd. v. Tata Finance Ltd. [(2000) 8 SCC 151] is the correct proposition and Punj Lloyds Ltd. v. Petronet MHB Ltd. [(2006) 2 SCC 638] followed Datar Switchgears [(2000) 8 SCC 151] . The question arising for consideration here is who had defaulted and on what basis of default has the Court entered jurisdiction under Section 11(6). This question though raised by the appellant in the counter-affidavit before the High Court has not been answered at all. Hence, the assumption of jurisdiction and adjudication by the High Court, in our opinion, is vitiated.
44. As rightly pointed out by the appellants, the High Court failed to appreciate that in accordance with Section 15(2) of the Act on the termination of the mandate of the presiding arbitrator, the two nominated arbitrators were first required to reach a consensus and on their failure to arrive at a consensus only was Respondent 2 authorised to make the appointment. Unless Respondent 2 failed to exercise its jurisdiction, the High Court could not assume jurisdiction under Section 11(6) of the Act. Respondent 1 has wrongly invoked the jurisdiction of this Court (sic the High Court) without first following the procedure agreed to 6 (2006) 10 Supreme Court Cases 763
14 NVSK, J Arbitration Application No.30_2024 between the parties. Thus no cause of action had arisen in the facts of the case to seek the appointment from the High Court under Section 11(6) of the Act and thus the said petition was premature. The High Court is also not correct in relying on the contention of Respondent 1 that in case one of the arbitrators is a retired Chief Justice, the presiding arbitrator should be at least a retired Chief Justice or a retired Judge of a High Court with considerable experience. It was submitted by learned Solicitor General appearing for the appellants that the said finding of the High Court is self-contradictory inasmuch as if the presiding arbitrator is a retired Judge of the High Court and one of the arbitrators is a retired Chief Justice of the High Court, the order of hierarchy is upset. Even otherwise, there does not exist any such provision in law which requires that if one of the arbitrators is a retired Judge the presiding arbitrator also has to be a retired Judge. The parties have entered into a contract after fully understanding the import of the terms so agreed to from which there cannot be any deviation. The courts have held that the parties are required to comply with the procedure of appointment as agreed to and the defaulting party cannot be allowed to take advantage of its own wrong."
19. Learned senior counsel further submits that in a situation where the original arbitrator had recused himself, the substitute or new arbitrator is required to be appointed according to the rules that were applicable to the appointment of the original arbitrator and applying the rules, it is incumbent on the petitioner to give notice and explore the possibility of naming an arbitrator by mutual consent and 15 NVSK, J Arbitration Application No.30_2024 only on failure thereof, the present application under Section 11(6) of the Act could/should have been filed. To buttress his submissions reliance was placed in the case of Huawei Technologies Co. Ltd. Vs. Sterlite Technoligies Ltd., 7 wherein the Hon'ble Supreme Court held at paras 7 and 8 as follows:
"7. Clause 22.3 of the supply contract which deals with the matter may be extracted at this stage:
"22.3. All disputes, controversies or claims arising out of or in connection with or in relation to this contract of its negotiation, performance, breach, existence or validity, whether contractual or tortious, shall be referred to arbitration in accordance with the Indian Arbitration and Conciliation Act, 1996 and conducted by a single arbitrator to be appointed by the parties by mutual consent. The cost of arbitration shall be shared by the parties. The place of the arbitration shall be India and the applicable law in relation to the procedure of the arbitration shall be determined by reference to the law of the place of the arbitration is to be held. The arbitration proceedings shall be conducted in English language. The award of the arbitration shall be final and binding against the parties hereto."
8. Clause 22.3 of the supply contract contemplates appointment of a sole arbitrator by the parties by mutual consent. In a situation where the original arbitrator i.e. Shri Justice S.K. Dubey had recused himself the substitute or new arbitrator is required to be appointed according to 7 (2016) 1 SCC 721 16 NVSK, J Arbitration Application No.30_2024 the rules that were applicable to the appointment of the original arbitrator. This is the mandate of Section 15(2) of the Act. It was, therefore, incumbent on the petitioner to give notice and explore the possibility of naming an arbitrator by mutual consent and only on failure thereof the present application under Section 11(6) of the Act could/should have been filed. The above recourse is required to be followed by virtue of the provisions of Section 15(2) of the Act and the decision of this Court in Yashwith Constructions (P) Ltd. [(2006) 6 SCC 204] Admittedly, the same had not been followed. In these circumstances, the Court will understand the present application/arbitration petition to be premature. It is accordingly not entertained leaving it open for the petitioner to act appropriately, if so advised, in terms of the present order and thereafter seek its remedies as provided by law."
20. The learned senior counsel has further drawn attention of this Court to the judgment of this Court in Hemant B. Prasad and another Vs. M/s. Perfect Solutions, rep. by its Prop. Sri Praful S. Shah, Hyderabad 8, and would submit that since Section 15(2) requires a substitute arbitrator to be appointed in accordance with the arbitration agreement, the High Court cannot straightaway appoint a substitute arbitrator even before the applicant has sought the consent of the respondent to the appointment of the substitute arbitrator named by them. Relevant paras No.9, 14, 15 and 26 are relied and are extracted for reference.
8 (2018) 4 ALT 430 17 NVSK, J Arbitration Application No.30_2024 "9. The question which arises for consideration is what do the words, "rules that are applicable to the appointment of the arbitrator being replaced", used in Section 15(2) of the Act, mean? A party, who has entered into an arbitration with another, should not be permitted to resile therefrom. When the mandate of the arbitrator stands terminated, appointment of an arbitrator should, necessarily, be made in accordance with the arbitration clause of the agreement. (National Highways Authority of India v. Bumihiway DDB Ltd. (3) (2006) 10 SCC 763 : (2007) 2 ALT 18.1 (DN SC); Yashwitha Constructions (P) Ltd. v. Simplex Concrete Piles India Ltd. rep. by its Managing Director (4) (2008) 4 ALT 266). Where the mandate of the arbitrator stands terminated for any reason, it fails within the purview of Section 15(1)(a) of the Act, and attracts Section 15(2) of the Act. (National Highways Authority of India (3 supra)).
14. Primacy is given to the procedure agreed upon by the parties, to appoint an arbitrator, failing which alone does the Act permit judicial interference. The parties are, normally, bound by the arbitration clause, and are obliged to comply with the procedure laid down therein. (Datar Switchgears Ltd. v. Tata Finance Ltd. (6) (2000) 6 ALT 26 (SC) = (2000) 8 SCC 151). Since Section 15(2) requires a substitute arbitrator to be appointed in accordance with the arbitration agreement, the High Court cannot straightaway appoint a substitute arbitrator even before the applicant has sought the consent of the respondent to the appointment of the substitute arbitrator named by them. On a harmonious 18 NVSK, J Arbitration Application No.30_2024 construction of Sections 11 and 15 (2) it must be held that, on the mandate of an arbitrator being terminated and only if the respondent, in accordance with the arbitration agreement, fails to agree to the appointment of a substitute arbitrator, can the jurisdiction of the High Court be invoked under Section 11 of the Act. (Yashwitha Constructions (P) Ltd. (4 supra)).
15. It is only if, on the termination of the mandate of the earlier arbitrator, the respondent has either refused, or has failed, to agree to the appointment of a substitute arbitrator, within 30 days of a specific request being made in this regard by the applicant, could the applicant have, thereafter, invoked the jurisdiction of the High Court under Section 11(5) read with Section 15(2) of the 1996 Act seeking appointment of a substitute arbitrator. As the applicant has failed to even call upon the respondent to agree to the appointment of a substitute arbitrator, Section 11(5) is not attracted. On a conjoint reading of Section 11(5) and Section 15(2) of the 1996 Act, the jurisdiction conferred on the High Court to appoint a substitute arbitrator, in the place of the arbitrator whose mandate stood terminated, is only if the parties fail to agree on the appointment of a substitute arbitrator within thirty days from the date of receipt of a request by one party from the other party to so agree. Consequently, the applicant is not entitled to invoke the jurisdiction of the High Court seeking appointment of an arbitrator in the place of the deceased arbitrator, even before requesting the respondent to convey their concurrence to the appointment of the substitute arbitrator proposed by them.
19 NVSK, J Arbitration Application No.30_2024
26. As noted hereinabove, the respondent is entitled, in terms of Clause 22 of the agreement read with Sections 11(5) and 15 (2) of the 1996 Act, to be consulted by the applicant in the appointment of a substitute arbitrator, even if they had failed to agree on the appointment of an arbitrator earlier. It is only if they refuse or fail to agree to the appointment of the person, suggested by the applicant, as the substitute arbitrator, within thirty days of receipt of such a request from the applicant, would the applicant then be entitled to invoke the jurisdiction of the High Court, under Section 11(5) read with Section 15(2) of the Act, requesting it to appoint a substitute arbitrator in the place of the deceased arbitrator. The present application, filed even before the applicant has requested the respondent to agree to the appointment of a substitute arbitrator in the place of the deceased arbitrator, is therefore not maintainable. Needless to statue that this order shall not disable the applicant from requesting the respondent to convey their consent to the appointment of a substitute arbitrator, in the place of the deceased arbitrator, and if the respondent refuses or fails to convey its consent within thirty days of such a request being received, to then invoke the jurisdiction of the High Court seeking appointment of a substitute arbitrator."
20 NVSK, J Arbitration Application No.30_2024
21. Learned senior counsel further draws the attention of this Court to the judgment rendered by the High Court of Calcutta in the case of Bharat Vanijya Eastern Private Limited Vs. State of West Bengal 9 and refers to para No.40, which is extracted for reference.
40. As explained by the Supreme Court in the above case, 'rules' in Section 15 (2) means 'provisions' or 'produce' for appointment of arbitrator made by the parties or applicable to the dispute. In this case, the sole Arbitrator was appointed with the consent of both the parties. The consent terms do not contain any 'provisions' or 'procedure' for appointment of arbitrator. Under Section 11(5) of the Act, failing an agreement between the parties on a procedure for appointing the arbitrator, in an arbitration with a Sole Arbitrator, a party desirous of appointing the arbitrator must make a request to the other party to agree to an appointment within thirty days from receipt of the request, failing which the appointment shall be made by the Chief Justice or his designate. The petitioner has not made any request to the respondent for appointment of an Arbitrator. The application by way of this Notice of Motion in the disposed of Suit in which the original Arbitrator was appointed under consent terms, is clearly misconceived and not maintainable.
22. Further, the learned senior counsel also relied on in the case of Consolidated Construction Company Vs. State of Orissa 10 and refers to para No.11, which is extracted for reference. 9 2023 SCC OnLine Cal 648 10 1979 SCC OnLine Ori 51 21 NVSK, J Arbitration Application No.30_2024
11. There is no force in this contention also. If there is an initial and inherent want of jurisdiction on the part of the arbitrator to proceed with the matter, that cannot be cured by acquiescence because it is well settled that consent cannot confer jurisdiction. As the appointment of the arbitrator by the Additional Chief Engineer was not in accordance with clause (23) of the F-2 agreement, that appointment was illegal and without jurisdiction, and as there was initial want of jurisdiction for the arbitrator so appointed to act in the arbitration proceeding, his acts and functions as the arbitrator were without jurisdiction. Merely because the parties or one of them did not expressly challenge his jurisdiction in the course of the proceeding, such a proceeding would not, in law, be valid and cannot be sustained, because it is well settled that consent cannot confer jurisdiction and want of jurisdiction cannot be cured by acquiescence. In paragraph 21 of the decision reported in Waverely Jute Mills Co. Ltd. v. Raymon and Co. (India) Pvt. Ltd2.
"Now an agreement for arbitration is the very foundation on which the jurisdiction of the arbitrators to act rests, and where that is not in existence, at the time when they enter on their duties, the proceedings must be held to be wholly without jurisdiction. And this defect is not cured by the appearance of the parties in those proceedings, even if that is without protest, because it is well settled that consent cannot confer jurisdiction."
22 NVSK, J Arbitration Application No.30_2024
23. The learned senior counsel would further submit that the aforesaid judgments of the Hon'ble Supreme Court are squarely applicable to the present case and that the jurisdiction of this Court under Section 11(6) read with Section 15(2) of the Act can only be invoked, if the respondent fails to appoint a substitute arbitrator under Section 15, following a specific request by Applicant No.2 through a written notice and in the present case no such written notice requesting for appointment of a substitute arbitrator is issued by the Applicant No.2 to the respondent. Thus, there is no failure/default on the part of the respondent to fulfil his obligation as per Section 11 of the Act and there is no cause of action for instituting the present Arbitration Application.
24. Per contra, learned counsel for petitioner had distinguished the judgment relied by the learned counsel for the respondent in the case of Yashwith Constructions (Supra) and submitted that it is a case where the agreement provided for appointment of substitute arbitrator and thus it was held that the process contemplated under Section 11 needs to be followed. Learned counsel submits that in the present case, the partnership agreement does not contain a provision for appointment of substitute arbitrator and thus this judgment is not applicable and the said judgment has been subsequently clarified by the Hon'ble Supreme Court in the case of S.B.P. and Company (supra). For reference learned counsel had drawn the attention of this Court to the relevant paras No.47 and 48, which reads as under:
23 NVSK, J Arbitration Application No.30_2024
47. Although the language of para 4 of the judgment in Simplex Concrete case [(2006) 6 SCC 204] gives an impression that the Court decided the matter by presuming that the agreement between the parties did not contain a provision for appointment of a substitute arbitrator if the original appointment terminates or if the original arbitrator withdraws from the arbitration and this omission is supplied by Section 15(2) of the Act, if that paragraph is read in conjunction with paras 2 and 3 it becomes clear that the arbitration agreement did provide for appointment of another arbitrator in the event originally appointed arbitrator was to resign and there was no plausible reason for the Court to presume that there is an omission in the agreement on the issue of appointment of a substitute arbitrator. In any case, the judgment cannot be read as laying down a proposition of law that in the absence of a specific provision in the arbitration clause, either party to the agreement can appoint a substitute arbitrator in the event of the originally appointed arbitrator refusing to act.
48. At the cost of repetition, we consider it necessary to observe that the agreements entered into between the appellant and Respondent 1 do not contain a provision for appointment of a substitute arbitrator in case the arbitrator appointed by either party was to decline to accept appointment or refuse to arbitrate in the matter.
Therefore, Respondent 1 cannot draw support from the ratio of the judgment in Yashwith Constructions (P) Ltd. v. Simplex Concrete Piles India Ltd. [(2006) 6 SCC 204]"
24 NVSK, J Arbitration Application No.30_2024
25. The learned counsel for Applicant further referred to the judgment in the case of National Highways Authority of India (supra) and submitted that it is a case where the agreement stipulated arbitration by 3 arbitrators and that each party shall appoint an arbitrator and the said two arbitrators shall appoint a third arbitrator.
As the present partnership agreement does not contemplate such a procedure, the judgment is not applicable to the facts of the case.
26. Further referred to the case of Huawei Technoligies (supra) and submitted that it is a judgment rendered by a single judge of the Supreme Court and the judgment rendered by the Supreme Court in the case of S.B.P. and Company (supra) is rendered by a bench of two judges and thus has primacy and is a binding precedent on this Court. Further, the latter judgment was not brought to the notice of the Hon'ble Supreme Court which decided this case.
27. Learned counsel further referred to the case of Hemant B. Prasad and another (supra), and submitted that the judgment rendered by the Hon'ble Supreme Court in the case of S.B.P. and Company (supra) [(2009) 10 Supreme Court Cases 293] was not brought to the notice of the learned Single Judge and thus this judgment is not a binding precedent.
25 NVSK, J Arbitration Application No.30_2024
28. In reply to the contentions of the Applicants, the learned senior counsel for the respondents submitted that during the course of hearing the matter on 26.06.2024, the learned counsel for the Applicants had placed reliance on the case of SBP and Company (supra), which allegedly overruled the decision in Yashwith Constructions (supra). In this regard, it is submitted that SBP and Company (Supra) has neither overruled the case of Yashwith Constructions (supra) nor lays down any proposition of law contrary to Yashwith Constructions and has no application to the facts and circumstances of the present case and therefore, the reliance placed on the judgment by the learned counsel for Applicants is wholly misconceived and unsustainable in law or on the facts. Similarly, the reliance placed on the judgment of the Allahabad High Court in the case of Tirath Ram Sumer Kumar (supra), is also not applicable to the present case.
29. Learned Senior Counsel further submitted that as per Clause 8(g) of the Parnership Deed dated 03.03.2012, Applicant No.2 is not authorised to initiate arbitration or represent the Applicant No.1 Firm in any proceedings. As such, no claims can be made by Applicant No.2 on behalf of the Applicant No.1 Firm and that Section 19(2)(a) of the Indian partnership Act, 1932, does not grant implied authority to a partner to refer business disputes to arbitration without express consent from other partners. In support of this aspect, learned senior 26 NVSK, J Arbitration Application No.30_2024 counsel placed reliance in the case of Maharashtra State Electricity Distribution Company Limited (MSEDCL) Vs. Godrej and Boyce Manufacturing Company Limited 11 wherein it was held that express authority of a partner is mandatory for submitting a dispute relating to the business of firm to arbitration. Further, in the case of J.J.L.B. Engineers and Contractors Vs. Manmohan Harijinder and Associates and others 12 wherein it is held that Section 19(2) of Partnership Act clearly rules out any implied consent of other partner to refer any dispute relating to the business of the firm to arbitration respect, unless there is usage or custom to the contrary. In the present case only disputes arising out of interpretation and enforcement of terms of the Partnership Deed may be referred to an arbitrator by Applicant No.2 in her individual capacity as a partner and not on behalf of the Firm.
30. Eventually, it is submitted that the present Arbitration Application is premature in nature and there is no proper cause of action for invoking the jurisdiction of this Court under Section 11 read with 15(2) of the Act. Thus, the present application is not maintainable in law and should therefore be dismissed.
31. Heard the learned counsel Sri P.S. Rajasekhar for the Applicants and the learned senior counsel Sri P.Vikram for the respondents and perused the material made available on the record. 11
2019 SCC OnLine Bom 3920 12 2000 SCC OnLine Bom 670 27 NVSK, J Arbitration Application No.30_2024
32. The following issues would fall for consideration for determination by this Court after hearing the arguments:
(i) Whether subsequent to the recusal/termination/withdrawal of the earlier presiding arbitrator by order dated 26.01.2024, the parties have to make a request to other party for appointment of a substitute Arbitrator as per the rules contemplated under Section 11 and the said rules are also applicable to the appointment of the substitute Arbitrator in terms of the Section 15(2) of the Act in the present case.
(ii) Whether the Applicant No.2 has authority to invoke arbitration in terms of Clause 19 of the deed of partnership dated 03.03.2012 for inter se disputes with respect to rendering of true and proper accounts of the Firm.
33. The Clause 19 of the Partnership Deed dated 03.03.2012 reads as under:
"In case of any disputes arising or interpretation or enforcement of terms of the partnership between the parties or their legal representatives, the same shall be referred to an arbitrator and the decision of the arbitrator shall be final and binding on the partners."
34. On a perusal of the records and the list of events submitted by the learned counsel for the respondents, it appears that a COP No.6 of 2024 was filed under Section 9 of the Arbitration and Conciliation Act, 1996 seeking relief regarding the purport dissolution of the Applicant No.1 Firm and the said petition is pending adjudication before the Commercial Court in Hyderabad and the Applicant No.2 has filed the current Arbitration Application for adjudication disputes mentioned in 28 NVSK, J Arbitration Application No.30_2024 the notice dated 17.05.2023. Thereafter, on 07.03.2024 the respondents have issued notice for an appointment of substitute Arbitrator and nominated Hon'ble Sri Justice A.Rajashekar Reddy (Retired High Court Judge) as sole Arbitrator. On 26.03.2023 Applicant No.2 issued reply disagreeing the appointment of said sole Arbitrator.
35. Section 11 of the Arbitration and Conciliation Act, 1996 contemplates the appointment of Arbitrator. Section 15 of the Act deals with termination of mandate and substitution of arbitrator. On a careful reading of the Section 15 of the Act, it is crystal clear that where the mandate of an Arbitrator terminates, a substitute Arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced. In Section 15, Provisions of Section 13 and 14 are referred to however, there is reference of Section 11, which deals with the appointment Arbitrator in a case where the parties failed to agree within the time prescribed. In the case on hand, process of an appointment of Arbitrator has already been concluded by order dated 24.11.2023 in Arbitration Application No.179 of 2023. Thereafter, the arbitration proceedings were commenced in Arbitration Case No.3 of 2023 and by procedural order dated 26.01.2024, sole Arbitrator had recused from the subject arbitration proceedings. The Applicants have now filed the present Arbitration Application under Section 11(6) of the Arbitration and Conciliation Act, 1996 read with Section 15(2) of the 29 NVSK, J Arbitration Application No.30_2024 Act, seeking for an appointment of substitute Arbitrator with respect to the disputes arose between the Applicants and the respondents in terms of the partnership deed dated 03.03.2012. Since the stage of appointment of Arbitrator has already been completed by on order of this Court dated 24.11.2023, now the present application i.e. Arbitration Application No.30 of 2024 is filed for appointment of substitute Aribtrator, which is only a continuation of the proceedings. As per the law laid down by the Hon'ble Supreme Court in the case of S.B.P. and Company (supra) wherein it is held that the term 'rules' used in Section 15(2) is not confined to statutory rules or the rules framed by the competent authority in exercise of the power of delegated legislation but also includes the terms of agreement entered into between the parties. The relevant paras No.31, 32, 34, 47 and 48 are extracted.
"31. What is significant to be noticed in the aforementioned provisions is that the legislature has repeatedly laid emphasis on the necessity of adherence to the terms of agreement between the parties in the matter of appointment of arbitrators and procedure to be followed for such appointment. Even Section 15(2), which regulates appointment of a substitute arbitrator, requires that such an appointment shall be made according to the rules which were applicable to the appointment of an original arbitrator. The term "rules" used in this sub-section is not confined to statutory rules or the rules framed by the competent authority in exercise of the power of
30 NVSK, J Arbitration Application No.30_2024 delegated legislation but also includes the terms of agreement entered into between the parties.
32. In Yashwith Constructions (P) Ltd. v. Simplex Concrete Piles India Ltd. [(2006) 6 SCC 204] this Court was called upon to examine the scope of Section 15 of the Act in the backdrop of the fact that after resignation of the arbitrator appointed by the Managing Director of the respondent company, another arbitrator was appointed by him in accordance with the arbitration agreement. At that stage, the petitioner filed an application under Section 11(5) read with Section 15(2) of the Act and prayed that the Chief Justice of the High Court may appoint a substitute arbitrator to resolve the disputes between the parties. The learned Chief Justice dismissed the application and held that Section 15(2) refers not only to statutory rules framed for regulating appointment of arbitrators but also to contractual provisions for such appointment.
34. While approving the decision of the High Court, this Court held : (Simplex case [(2006) 6 SCC 204] , SCC pp. 206-07, paras 4-5) "4. ... The term 'rules' in Section 15(2) obviously referred to the provision for appointment contained in the arbitration agreement or any rules of any institution under which the disputes were referred to arbitration. There was no failure on the part of the party concerned as per the arbitration agreement, to fulfil his obligation in terms of Section 11 of the Act so as to attract the jurisdiction of the Chief Justice under Section 11(6) of the Act for appointing a substitute arbitrator. Obviously, Section 11(6) of the Act has 31 NVSK, J Arbitration Application No.30_2024 application only when a party or the person concerned had failed to act in terms of the arbitration agreement. When Section 15(2) says that a substitute arbitrator can be appointed according to the rules that were applicable for the appointment of the arbitrator originally, it is not confined to an appointment under any statutory rule or rule framed under the Act or under the scheme. It only means that the appointment of the substitute arbitrator must be done according to the original agreement or provision applicable to the appointment of the arbitrator at the initial stage. We are not in a position to agree with the contrary view taken by some of the High Courts.
5. Since here, the power of the Managing Director of the respondent is saved by Section 15(2) of the Act and he has exercised that power on the terms of the arbitration agreement, we see no infirmity either in the decision of the learned Chief Justice or in that of the Division Bench."
47. Although the language of para 4 of the judgment in Simplex Concrete case [(2006) 6 SCC 204] gives an impression that the Court decided the matter by presuming that the agreement between the parties did not contain a provision for appointment of a substitute arbitrator if the original appointment terminates or if the original arbitrator withdraws from the arbitration and this omission is supplied by Section 15(2) of the Act, if that paragraph is read in conjunction with paras 2 and 3 it becomes clear that the arbitration agreement did provide for appointment of another arbitrator in the event originally appointed arbitrator was to resign and there was no plausible reason for the Court to presume that 32 NVSK, J Arbitration Application No.30_2024 there is an omission in the agreement on the issue of appointment of a substitute arbitrator. In any case, the judgment cannot be read as laying down a proposition of law that in the absence of a specific provision in the arbitration clause, either party to the agreement can appoint a substitute arbitrator in the event of the originally appointed arbitrator refusing to act.
48. At the cost of repetition, we consider it necessary to observe that the agreements entered into between the appellant and Respondent 1 do not contain a provision for appointment of a substitute arbitrator in case the arbitrator appointed by either party was to decline to accept appointment or refuse to arbitrate in the matter. Therefore, Respondent 1 cannot draw support from the ratio of the judgment in Yashwith Constructions (P) Ltd. v. Simplex Concrete Piles India Ltd. [(2006) 6 SCC 204]"
36. Further, the Hon'ble Supreme Court in the case of Shailesh Dhairyawan (supra) wherein referring the case of S.B.P. and Company (supra) held at para No.35 as follows:
"35. Once we keep in mind the aforesaid fundamental aspects of the arbitration, the irresistible conclusion would be that whenever parties agree for mediation, and even name a specific arbitrator with no specific provision for appointment of another arbitrator on the recusal/withdrawal of the said arbitrator, the said omission is made up by Section 15(2) of the Act and unless arbitration agreement between the parties provides a categorical prohibition or 33 NVSK, J Arbitration Application No.30_2024 debarment in resolving a question or dispute or difference between the parties by a substitute arbitrator in case of death of the named arbitrator or non-availability of the said arbitrator, courts have the power to appoint substitute arbitrator, which power is given by Section 15(2) of the Act as this provision is to be given liberal interpretation so as to apply to all possible circumstances under which the mandate of the earlier arbitrator may be terminated."
37. The respondents have already issued notice on 07.03.2024 for invocation of arbitration for adjudication of the disputes in relation to dissolution of the Firm and for an appointment of substitute Arbitrator and the respondent has already nominated Hon'ble Sri Justice A.Rajashekar Reddy (Retired High Court Judge), as sole Arbitrator and later, the Applicant No.2 by letter dated 26.03.2024 had disagreed with the said appointment and filed the present Arbitration Application. In the case on hand, the parties are bound by the rules of the Agreement dated 03.03.2012 and the agreement does not contain any Clause/Provision for appointment of a substitute Arbitrator in case the Arbitrator appointed refused to arbitrate the matter. As held by the Hon'ble Supreme Court in Shailesh Dhairyawan (supra) such omission is made up by Section 15(2) of the Act and the said clause does not prohibit in resolving disputes by a substitute arbitrator and in the said circumstances this Court has power to appoint substitute arbitrator under Section 15 (2) of the Act.
34 NVSK, J Arbitration Application No.30_2024
38. It is pertinent to note that since the respondents have already initiated the arbitration proceedings for appointment of substitute Arbitrator, the submissions of the learned senior counsel for the respondents, at this juncture, are totally misguided and self contradicting to the ratio laid down by the Hon'ble Supreme Court in SBP and Company and Shailesh Dhairyawan (supra) and are belated, misconceived and unsustainable accordingly, the issue No.1 is answered in favour of the Applicant.
39. On a plain reading of clause 19 of partnership dated 03.03.2012 for the dispute resolution mechanism, it can be deciphered that the dispute resolution pertains only to the inter se disputes between the parties and the enforcement of the terms of the partnership deed. The Applicant No.2 has invoked arbitration with respect to the unresolved disputes between the Applicant No.2 and the respondent with respect to the Applicant No.1 Firm business. The dispute raised in the arbitration proceedings is only to the extent of settlement of accounts between the Applicant No.2 and the Respondent with respect to the business of applicant No.1 firm. In a partnership agreement, the parties jointly represent themselves as firm for the purpose of enforcement of their rights. It is pertinent to note that any disputes pertaining to the Applicant firm with third parties can only be represented by the respondent. However, clause 19 of the partnership deed covers the inter se disputes between the Applicant No.2, which is the subject matter of the dispute and the 35 NVSK, J Arbitration Application No.30_2024 respondent. As such, the submissions of the learned counsel for the respondent that as per Clause 8(g) of the partnership deed dated 03.03.2012, the Applicant No.2 is not authorised to initiate Arbitration and that only the respondent has authority to refer the disputes with respect to the firm is misconstrued and overlooked the well settled legal position.
40. Accordingly, the issue No.2 is answered against the respondent.
41. In view of the preceding judicial analysis and that the respondent has already nominated the substitute Arbitrator, which has been disagreed by the Applicant No.2 and in the said circumstances, this Court is of the considered opinion that under Section 15(2) of the Act has power to appoint substitute Arbitrator. The present Arbitration Application is allowed in terms of the prayer relief sought for.
42. In view of the facts and circumstances of the case and as per aforesaid discussion, Hon'ble Ms. Justice G. Rohini, (Former Chief Justice of Delhi High Court), H.No.3-3-108/153 & 172, New Friends Colony Phase-2, Attapur, Hyderguda, Hyderabad-500048, Mobile:
8527027027 is appointed as the sole Arbitrator to adjudicate the disputes between the parties.
36 NVSK, J Arbitration Application No.30_2024
43. Let a copy of this order be furnished to the learned Arbitrator. Parties to appear before the learned Arbitrator as appointed.
44. Accordingly, this Arbitration Application stands disposed of. There shall be no order as to costs.
As a sequel, miscellaneous applications, pending if any, shall stand closed.
________________________________ JUSTICE N.V. SHRAVAN KUMAR Date: 09.06.2025 Note: L.R. copy be marked.
B/o.
LSK