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Synopsis

The Delhi High Court, recently, held that consent from non-signatories is not required to invoke arbitration. Yves Saint Laurent (YSL) approached the court contending that the appointment of the arbitrator was unilateral and therefore arbitrator was rendered de jure incapable of performing his functions as an arbitrator.

The bench of Justice C Hari Shankar, however, held that “the requirement of consensus regarding appointment of the arbitrator, as envisaged under Section 21, applies only to the parties to the arbitration agreement, and not to a non-signatory who is sought to be included in the proceedings”. 

Yves Saint Laurent (YSL) entered into a Franchise Agreement (FA) with Beverly Luxury Brands Ltd on April 19, 2019, to open a boutique in Delhi. The FA lacked an arbitration clause and gave exclusive jurisdiction to the Commercial Court in Paris for dispute resolution. On July 2, 2019, Beverly signed a Sub-Franchise Agreement (SFA) with Brompton Lifestyle Brands Pvt Ltd without YSL’s consent, and YSL was not a party to this agreement.

YSL terminated the FA on August 8, 2021, and Beverly also ended the SFA. On February 22, 2022, Brompton issued a notice under Section 21 of the Arbitration and Conciliation Act, invoking the SFA’s arbitration clause and seeking arbitration for disputes involving both YSL and Beverly. YSL claimed it first became aware of the SFA through this notice. 

On July 23, 2022, the Arbitrator accepted the reference, after which YSL wrote to Beverly, asserting its lack of knowledge of the SFA and requesting removal from the arbitration. YSL reiterated its stance in subsequent correspondence and during arbitration proceedings.

The Arbitrator, on April 8, 2023, dismissed YSL's Section 16 application, noting that YSL had received all necessary notices but chose to remain absent from the proceedings. The Arbitrator held that YSL could not seek termination of the arbitration without first addressing the ex parte orders and that Section 16 of the 1996 Act did not empower him to set aside those orders.

Senior Advocate Akhil Sibal, representing YSL, argued that the Arbitrator lacked competence due to the unilateral nature of his appointment, as YSL's consent to arbitration had not been obtained. Thus, he contended that the Arbitrator improperly rejected YSL's application under Section 16 and continued with the arbitration proceedings.

Advocate Gaurav Gupta, representing Brampton, raised a preliminary objection concerning the maintainability of the petition. He argued that after YSL submitted an application under Section 16, and it was dismissed, YSL's only option was to await the final award and subsequently challenge it under Section 34 of the 1996 Act. He contended that a petition seeking to terminate the Arbitrator's mandate without a request for appointing a substitute Arbitrator was not maintainable.

Regarding the Arbitrator's order dated 8 April 2023, which dismissed YSL's Section 16 application, Senior Advocate Sibal asserted that the merits of the application were not considered, as it was rejected on procedural grounds. He argued that, due to the lack of a decision on the merits, YSL had no choice but to invoke Section 14 of the 1996 Act.

Senior Advocate Sibal emphasized that Section 14(2) refers to "the Court" as defined in Section 2(1)(e), while the appointment of a substitute Arbitrator could only be made by the High Court, indicating that terminating the Arbitrator's mandate does not automatically lead to the appointment of a substitute Arbitrator.

The court rejected Advocate Gupta's preliminary argument asserting that YSL’s plea was not maintainable due to the arbitrator's order. The court held that the YSL possessed an absolute right to seek termination of the arbitrator's mandate under Section 14 when circumstances warranted such termination. “The right of the petitioner to seek termination of the mandate of an arbitrator, where the circumstances justify such termination, as envisaged by Section 14 of the 1996 Act apply, is absolute and untrammeled by any other considerations”, the court highlighted. 

The court clarified that the 1996 Act did not restrict a party's right to terminate the arbitrator's mandate under Section 14 merely because the party had previously filed an unsuccessful Section 16 petition. The Supreme Court emphasized that if a Section 16 application was accepted, the opposing party had a right to appeal under Section 37(2)(a). However, if rejected, the applying party had to await the final award for any challenge.

The court evaluated the specific request in the petition, which sought the termination of the learned arbitrator's mandate in the dispute between Brompton and Beverly. The circumstances for termination included the arbitrator's de jure or de facto inability to perform, failure to act without undue delay, withdrawal, or mutual agreement to terminate. The YSL claimed the arbitrator was de jure incapable due to unilateral appointment, which the court found unsubstantiated. The court elucidated, “It cannot be disputed that the 1996 Act does not permit unilateral appointment of an arbitrator”. 

The court referred to previous Supreme Court rulings confirming the necessity of consensus for arbitrator appointments. The term "party" as defined in the Act indicated that the consensus requirement applied only to parties involved in the arbitration agreement, excluding non-signatories. The YSL incorrectly assumed the arbitrator's appointment was unilateral due to lack of consent, despite being a non-signatory.

Additionally, the petition did not request the YSL’s removal from the arbitral proceedings. If Brompton and Beverly had not consented to the arbitrator’s appointment, it could be considered unilateral. However, the records did not clarify whether Beverly had consented, nor did the YSL assert that consent was not obtained. The evidence suggested Beverly had consented, thus invalidating the claim of unilateral appointment.

“In that view of the matter, the appointment of the learned arbitrator cannot be treated as unilateral and, therefore, void on that ground”, the court held. Accordingly, the court dismissed the plea seeking termination of the arbitrator. 

For YSL: Senior Advocate Akhil Sibal with Advocates Aseem Chaturvedi, Nirupam Lodha, Rashika Bajpai, Kingshuk Banerjee, Shivank Diddi, Arsh Alok, and Gautam Wadhwa
For Brompton: Advocates Gaurav Gupta, Nikhil Kohli, and Akshaya Ganpath
Case Title: Yves Saint Laurent v Brompton Lifestyle Brands Private Limited & Anr. (2024:DHC:7167)