In a significant decision, the Bombay High Court has clarified that the substitution of an arbitrator under Section 29A(6) of the Arbitration and Conciliation Act, 1996, cannot be done unless the grounds set out under Sections 14 and 15 of the Act are met. Justice Somasekhar Sundaresan, while hearing Arbitration Petitions No. 33 and 39 of 2025 filed by Indiabulls Infraestate Ltd., firmly ruled against the substitution of the sole arbitrator despite pleas made by Bliss Habitat Pvt. Ltd. and Imagine Realty Pvt. Ltd.
The petitions were filed by Indiabulls seeking a one-year extension of the mandate of the Arbitral Tribunal, which had expired on August 31, 2023. The disputes involved high-end apartments allotted by Indiabulls to Bliss and Imagine at the Indiabulls Blu project in Mumbai, with loan facilities availed from Indiabulls Housing Finance Ltd. (IHFL). Following defaults in payments despite multiple opportunities, Indiabulls paid IHFL to release mortgages and cancelled the allotments.
The arbitration proceedings took two parallel routes. IHFL initiated arbitration against Bliss and Imagine, seeking validation of the loan account closure. Subsequently, Bliss and Imagine invoked Section 11 to start arbitration proceedings against Indiabulls over the cancellation of allotments, both proceedings being handled by the same sole arbitrator.
However, Bliss and Imagine moved applications alleging bias and sought the substitution of the arbitrator, arguing that the arbitrator had delayed proceedings and showed prejudice by rejecting their requests to implead Indiabulls in the IHFL arbitration and to club the two arbitrations. They contended that such actions pointed to the arbitrator having "made up his mind" against them.
The Court observed, Merely because substitution is referred to in Section 29A(6) of the Act, the principles and the grounds on which substitution is envisaged under Sections 14 and 15 would not evaporate. It further emphasized that substitution under Section 29A requires that the arbitrator must be de jure or de facto unable to perform duties, which was not demonstrated in this case.
The Court noted that the parties’ grievances should be raised in a Section 34 challenge after the award and not used to disrupt the arbitration proceedings prematurely. It criticized the parties for attempting to derail the process by questioning the tribunal's impartiality without sufficient basis.
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Addressing the delay allegations, the Court remarked, "The parties overlook the Covid-19 pandemic and statutory extensions granted during that period. Their argument of being 'constrained' to agree to a six-month extension does not inspire confidence."
Moreover, the Court highlighted the inconsistent stance of Bliss and Imagine who contested the Bombay High Court’s jurisdiction despite previously approaching it under Section 11. The Court asserted that under Section 42 of the Act, once a court is approached concerning an arbitration agreement, it retains exclusive jurisdiction over all subsequent applications.
Given the circumstances, the Court allowed the extension of the Arbitral Tribunal’s mandate by six months but declined the request for substitution. It also imposed costs of Rs. 1,50,000 on Bliss and Imagine, payable to Indiabulls within four weeks, considering the delay tactics employed.
Concluding the matter, Justice Sundaresan said, The arbitration is at an advanced stage, and substituting the tribunal would cause undue disruption. The tribunal is expected to proceed expeditiously and conclude the arbitration within the extended period.
The decision reaffirms the limited scope for court interference in arbitration proceedings and strengthens the principle that substitution of arbitrators must meet strict statutory conditions.
Case Title: Indiabulls Infraestate Ltd. Versus Imagine Realty Pvt. Ltd.
Case Number: 2025:BHC-OS:6783
Judgment Date: 23/04/2025
