Recently, the Andhra Pradesh High Court has held that the request for seeking appointment of an independent arbitrator other than the named arbitrator cannot be entertained if there is no evidence to show that the named arbitrator would act in a partial or biased manner.
Brief Facts:
The present arbitration application has been filed under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator to adjudicate disputes arising from a Sub-Lease Agreement dated 06.01.2018. The applicant, M/s. Kranthi Grand DKNV Hospitalities, had entered into a sub-lease agreement with respondent No.1, M/s. Manasa Estates and Hospitality Pvt. Ltd., which was itself a lessee of the subject property and had the right to create a sub-lease in favor of third parties. The lease was granted for a period of eight years, commencing from 01.04.2018, with a monthly rental of ₹14,00,000. The applicant asserted that an amount of ₹30 lakhs was invested in renovating the premises to establish a hotel and restaurant. However, the respondents allegedly interfered with the peaceful possession of the applicant and forcibly dispossessed them despite their legal entitlement to remain in possession until 2026, in clear violation of the lease agreement’s terms.
Contentions of the Petitioner:
The learned counsel for appellant argued that Clause 15 of the Sub-Lease Agreement stipulates that disputes must be resolved through arbitration, with Mr. Venu Gottipati specifically named as the arbitrator. However, upon serving a notice to invoke arbitration on 23.09.2023, the applicant proposed the appointment of an independent arbitrator, Mr. K. Ravi, Advocate, instead of the named arbitrator. This proposal was not accepted by the respondents, prompting the present application for an alternative appointment. Further it was contended that they do not trust the named arbitrator, Mr. Venu Gottipati, on the ground that he allegedly favored the respondents and did not act impartially when concerns were raised.
Contentions of the Respondent:
The learned counsel for the respondents opposed the appointment of any arbitrator other than the one designated in the lease agreement. It was contended that the applicant willingly entered into the agreement with full knowledge of the arbitration clause and cannot now seek to alter its terms. Further, the applicant has failed to demonstrate any valid reason for disregarding the named arbitrator. Further it was contended that the applicant has neither substantiated claims of bias nor provided material evidence suggesting that the named arbitrator would not act independently.
Observations of the Court:
The court examined the arbitration clause in the lease agreement, which explicitly provided for the resolution of disputes through arbitration by Sri Venu Gottipati. The court noted that at the time of signing the agreement, the applicant had voluntarily accepted this clause, and there was no statutory ineligibility under Section 12(5) of the Arbitration and Conciliation Act, 1996, that would disqualify the named arbitrator.
The court referred to the judgment in Northern Railway Administration v. Patel Engineering Co. Ltd., and Indian Oil Corporation Ltd. v. Raja Transport Pvt. Ltd., emphasizing that referring disputes to the named arbitrator is the norm, and deviation from this rule requires a valid and compelling reason. The court observed that the applicant had not placed any material on record to demonstrate that the named arbitrator was likely to act in a biased or partial manner. Further, the court discussed the significance of arbitration clauses, stating that an arbitration agreement is a comprehensive package that includes not just the agreement to arbitrate but also the procedure for appointing an arbitrator. The court reiterated that a party cannot selectively invoke arbitration while attempting to modify the arbitrator appointment mechanism to suit its preferences.
The Supreme Court’s decision in Indian Oil Corporation Ltd. v. Raja Transport Pvt. Ltd., was cited, wherein it was held that courts should generally uphold the named arbitrator unless there are compelling reasons to appoint an alternative. The Apex Court clarified that mere dissatisfaction with the named arbitrator is not sufficient to override the agreed contractual terms. The court found that the applicant’s apprehension of bias was vague and unsupported by any evidence. Since there was no substantial ground to justify the rejection of the named arbitrator, the court held that the arbitration clause must be upheld as per the agreement.
The decision of the Court:
The court concluded that the applicant had failed to provide any valid reason for departing from the agreed arbitration clause and dismissed the application.
Case Title: Kranti Grand DKNV Hospitalities vs. Manasa Estates and Hospitality Pvt. Ltd.
Coram: Hon’ble Chief Justice Dhiraj Singh Thakur
Case No.: Arbitration Application No.: 62 of 2023
Advocate for the Applicant: Mr. Dheera Kanishka
Advocate for the Respondent: Mr. V. V. Ravi Prasad
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