Case Note & Summary
The applicant, Integro Finserv Private Limited, an NBFC, filed three applications under Section 14 read with Section 11 read with Section 15 of the Arbitration and Conciliation Act, 1996, seeking substitution in place of the original lender, L & T Finance Limited, in pending arbitral proceedings and appointment of a substitute arbitrator. The respondent, Vineet Singh Construction Private Limited, had availed loans from L & T Finance under a Loan-cum-Hypothecation Agreement dated 12/03/2012, which contained an arbitration clause. On 14/10/2013, L & T Finance invoked arbitration and unilaterally appointed an arbitrator. Subsequently, L & T Finance assigned the debt to CFM Asset Reconstruction Private Limited via a Deed of Assignment dated 26/06/2019, which further assigned it to Integro via a Deed of Assignment dated 16/02/2022. On 26/09/2022, Integro applied for substitution in the arbitral proceedings. The respondents opposed the application, arguing that the unilateral appointment of the arbitrator was invalid and that the assignee could not be substituted. The court held that the assignment of debt includes the right to continue arbitration, and the assignee steps into the shoes of the assignor. The court further held that the unilateral appointment of the arbitrator, though valid at the time of appointment in 2013, became invalid after the 2015 amendment to the Act. Consequently, the arbitrator's mandate terminated under Section 14(1)(a) as he became de jure unable to perform his functions. The court allowed the substitution of Integro in place of L & T Finance and appointed a substitute arbitrator to adjudicate the disputes.
Headnote
A) Arbitration Law - Substitution of Assignee - Section 15 of Arbitration and Conciliation Act, 1996 - Assignment of Debt - The applicant, an assignee of the debt, sought substitution in pending arbitral proceedings. The court held that the assignment of debt includes the right to continue arbitration and the assignee steps into the shoes of the assignor. The court allowed substitution and appointed a substitute arbitrator as the originally appointed arbitrator had become de jure unable to act due to the unilateral appointment clause being invalid post the 2015 amendment. (Paras 1-29) B) Arbitration Law - Unilateral Appointment of Arbitrator - Section 12 of Arbitration and Conciliation Act, 1996 - The original arbitration clause allowed unilateral appointment by the lender. The court noted that such appointments are not per se invalid for arbitrations commenced before the 2015 amendment, but after the amendment, they are invalid. Since the arbitration commenced in 2013, the unilateral appointment was valid at that time. However, the arbitrator's mandate terminated due to the change in law, and the court appointed a substitute. (Paras 10-15) C) Arbitration Law - Termination of Mandate - Section 14 of Arbitration and Conciliation Act, 1996 - The court found that the arbitrator appointed unilaterally by the lender became de jure unable to perform his functions because the law now prohibits such appointments. Therefore, his mandate terminated under Section 14(1)(a), and the court could appoint a substitute under Section 15. (Paras 16-20)
Issue of Consideration
Whether an assignee of a debt can be substituted in place of the original lender in pending arbitral proceedings and whether the court can appoint a substitute arbitrator under Section 15 of the Arbitration and Conciliation Act, 1996 when the originally appointed arbitrator has become de jure unable to perform his functions.
Final Decision
The court allowed the applications, substituted Integro Finserv Private Limited in place of L & T Finance Limited in the arbitral proceedings, and appointed a substitute arbitrator to adjudicate the disputes between the parties.
Law Points
- Assignment of debt includes assignment of right to arbitration
- Section 15 of Arbitration and Conciliation Act
- 1996 allows substitution of arbitrator upon assignment
- unilateral appointment of arbitrator by one party is not invalid per se under pre-2015 regime
- Section 14 read with Section 15 applies when arbitrator de jure unable to act
