Disqualified Arbitrator Does Not Invalidate Arbitration Agreement or Justify Bypassing Alternative Remedy via Writ Petition

The petitioner, ITC Limited, challenged an order dated 26.06.2023 issued by Respondent No. 2, which forfeited the security deposit submitted for a specific tender.

The petitioner sought a refund with interest, contesting the government’s decision to retain the funds.

The respondents raised a preliminary objection regarding the maintainability of the writ petition, pointing to a mandatory arbitration clause (Clause 30.2) in the tender agreement.

The dispute centered on factual disagreements regarding wheat quality and alleged delays in transportation.

The petitioner argued that because the designated arbitrator was an official of the department involved in the dispute, they were legally disqualified from acting, rendering the alternative remedy ineffective.

1. Whether a writ petition under Article 226 is maintainable when the underlying contract contains an arbitration clause, even if the named arbitrator is legally disqualified.

2. Whether the dispute involves complex factual determinations that preclude the exercise of summary writ jurisdiction.

Article 226 of the Constitution of India regarding the discretionary nature of writ jurisdiction in contractual matters.

Sections 11(6), 12(5), 14, and 15 of the Arbitration and Conciliation Act, 1996, which govern the disqualification and substitution of arbitrators.

The precedent established in Kerala State Electricity Board & Another v. Kurien E. Kalathil & Others (2018), which dictates that writ courts should not interpret contract terms or resolve factual disputes when effective alternative remedies exist under contract law.

The court reasoned that the legal disqualification of a specific individual named as an arbitrator does not invalidate the arbitration agreement itself.

Instead of bypassing the agreed-upon dispute resolution mechanism, the petitioner should have utilized the statutory framework of the Arbitration and Conciliation Act to seek the appointment of a neutral substitute.

The Bench observed that the core of the dispute—involving wheat quality, delay responsibility, and the fairness of forfeiture—required an examination of evidence and inspection reports.

Such "questions of fact" are unsuitable for summary proceedings under Article 226.

The court found that none of the recognized exceptions for entertaining a writ in contractual matters, such as a total lack of jurisdiction or a violation of fundamental rights, were present in this case.

The court concluded that the existence of a disqualified arbitrator does not destroy the arbitration system but merely necessitates the appointment of a replacement.

The petitioner was granted liberty to invoke Clause 30.2 and apply for the appointment of a substitute arbitrator under the Arbitration and Conciliation Act, 1996.