Reasonable Time To Appoint Arbitrator Cannot Be Decided By Counting Days After Notice: Delhi High Court

The Delhi High Court on 21 August held that a party's reasonable time to appoint an arbitrator cannot be assessed merely by counting the days after a formal arbitration notice, and that courts must also consider earlier litigation, failed mediation and attempts to agree on an arbitrator.

Justice Om Prakash Shukla rejected a prematurity objection in a family partnership dispute and appointed former Supreme Court Judge Justice (Retd.) Ravindra Bhat as sole arbitrator to adjudicate disputes between Sugat Jain, Amit Jain and another family member concerning Aero Enterprises. The Bench observed:

“In view of this court, what constitutes a reasonable time 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. 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 agreed appointment procedure has failed.”

The dispute arose from a 1 September 2016 Partnership Deed governing Aero Enterprises, under which Sugat holds a 50% share, while Amit and another family member hold 25% each.

The firm's properties had been used as collateral for credit facilities availed by another family entity, Ratna Sagar Private Limited, under an arrangement stated to have existed since 2013. Disputes later arose over the firm's management, with Sugat alleging that he was denied access to the firm's financial records.

The security dispute escalated in September 2025, when Amit sought release of the firm's properties from the cross-mortgaging arrangement. Sugat objected on 4 September 2025, while Amit approached Punjab National Bank on 29 September seeking alteration of the arrangement.

On 19 May 2026, the bank informed Sugat that the credit facilities could not be renewed because of Amit's communication. Sugat moved the High Court under Section 9 of the Arbitration and Conciliation Act, 1996, which allows courts to grant interim measures in arbitration-related disputes, on 21 July 2026.

The Court referred the parties to mediation at SAMADHAN on 27 July. However, mediation sessions held on 30 July, 10 August and 13 August failed.

On 13 August, Sugat proposed a mutually agreed sole arbitrator under Clause 14 of the Partnership Deed, but the parties failed to reach a consensus. Sugat formally invoked arbitration by issuing a notice under Section 21 of the Arbitration and Conciliation Act on 16 August 2026.

The issue before the High Court was whether Sugat's petition under Section 11(6) of the Act, which allows the Court to appoint an arbitrator when the agreed appointment procedure fails, was premature because he filed it soon after the formal arbitration notice.

Sugat argued that the parties had already made unsuccessful efforts to agree on an arbitrator. Amit and the other family member contended that the petition was premature since the 16 August notice had only recently been issued and they had neither proposed nor expressly refused an appointment.

Rejecting the objection, the Court noted that Section 11(6) prescribes no fixed statutory period, although the opposite party must ordinarily be given a reasonable opportunity to act under the agreed appointment procedure. It observed:

“The opposite party must ordinarily be afforded a reasonable opportunity to act under the agreed appointment procedure.”

It held that the events preceding the 16 August notice, including the court proceedings, failed mediation and the unsuccessful 13 August attempt to agree on an arbitrator, could not be ignored while determining whether the appointment procedure had failed.

The Bench also rejected the argument that there was no “failure to act” because no express refusal had been communicated. It held that the relevant question was whether the agreed procedure had resulted in the constitution of the arbitral tribunal. It observed:

“The relevant enquiry is not whether an express refusal was committed, but whether the agreed procedure resulted in the constitution of the Arbitral Tribunal.”

Justice Shukla also held that accepting the contrary view would allow a party to delay the constitution of the tribunal through inaction. Considering the failed mediation, unsuccessful appointment discussions and absence of any subsequent positive step towards appointing an arbitrator, he rejected the prematurity objection.

Accordingly, the High Court appointed Justice (Retd.) Ravindra Bhat as sole arbitrator under the aegis of the Delhi International Arbitration Centre and directed that Sugat's pending Section 9 petition be treated as a Section 17 application before the arbitrator.

Appearances for petitioner (Sugat Jain): Advocates Saurav Agrawal, Omar Ahmed, Manisha Singh, Harshit Malik, Sulekha Agrawal, Anusha Sinha, Rahul Chatwal, Aarya Bhat, Tuhin Dey, Aadarsh Mittal and Divyanshu Rana.

Appearances for respondent (Amit Jain & Anr.): Advocates Gaurav Gupta, Shivangi Gupta and Vallabhi Rastogi.