Arbitration and Conciliation Act, 1996 – s.12 and s.18 – Position of law as regards s.12 of the Act, 1996 – Application of principle of equal treatment of parties provided in s.18: Held: The principle of equal treatment of parties provided in s.18 of the Act, 1996, applies not only to the arbitral proceedings but also to the procedure for appointment of arbitrators – Equal treatment of the parties entails that the parties must have an equal say in the constitution of the arbitral tribunal. [Para 123(i)] Arbitration and Conciliation Act, 1996 – Sub-section (5) of s.12 and Seventh Schedule – When relationship falls within any of the categories specified in the Seventh Schedule: Held: Sub-section (5) of s.12 provides that any person whose relationship with the parties or counsel, or the dispute, whether direct or indirect, falls within any of the categories specified in the Seventh Schedule would be ineligible to be appointed as an arbitrator – Since, the ineligibility stems from the operation of law, not only is a person having an interest in the dispute or its outcome ineligible to act as an arbitrator, but appointment by such a person would be ex facie invalid. [Para 123(ii)]
Arbitration and Conciliation Act, 1996 – Proviso to s.12(5) – The words “an express agreement in writing” in the proviso to s.12(5):
Held: The words “an express agreement in writing” in the proviso to s.12(5) means that the right to object to the appointment of an ineligible arbitrator cannot be taken away by mere implication – The agreement referred to in the proviso must be a clear, unequivocal written agreement. [Para 123(iii)]
Arbitration and Conciliation Act, 1996 – s.12(5) – When an arbitrator is found to be ineligible by virtue of s.12(5) r/w. the Seventh Schedule:
Held: When an arbitrator is found to be ineligible by virtue of s.12(5) r/w. the Seventh Schedule, his mandate is automatically terminated – In such circumstance, an aggrieved party may approach the court u/s. 14 r/w. s.15 for appointment of a substitute arbitrator – Whereas, when an award has been passed by such an arbitrator, an aggrieved party may approach the court u/s. 34 for setting aside the award. [Para 123(iv)]
Arbitration and Conciliation Act, 1996 – s.12 – Parties vest jurisdiction in the tribunal:
Held: In arbitration, the parties vest jurisdiction in the tribunal by exercising their consent in furtherance of a valid arbitration agreement – An arbitrator who lacks jurisdiction cannot make an award on the merits – Hence, an objection to the inherent lack of jurisdiction can be taken at any stage of the proceedings. [Para 123(v)]
Arbitration and Conciliation Act, 1996 – sub-section (5) of s.12 and Seventh Schedule – Objective of s.12:
Held: There is a conspectus of decisions of this Court which lay down that, s.12 was amended with the objective of ensuring independence and impartiality of arbitrators – By virtue of subsection (5) of s.12, any person whose relationship with the parties or counsel, or the dispute, whether direct or indirect, falls within any of the categories specified in the Seventh Schedule is rendered ineligible to be appointed as an arbitrator. [Para 51] Arbitration and Conciliation Act, 1996 – sub-section (5) of s.12 – When an arbitration agreement is in violation of subsection (5) of s.12: Held: When an arbitration agreement is in violation of sub-section
(5) of s.12 of the Act, 1996, the parties can neither insist on appointment of an arbitrator in terms of the agreement nor would any appointment so made be valid in the eyes of law. [Para 57] Arbitration and Conciliation Act, 1996 – Unilateral appointments: Held: Unilateral appointments are not consistent with the basic tenet of arbitration, i.e., mutual confidence in the arbitrator – It would not be unreasonable for a party to apprehend that an arbitrator unilaterally appointed by the opposite party may not act with complete impartiality. [Para 58]
Arbitration and Conciliation Act, 1996 – s.12(5) – s.12(5) and unilateral appointment of an arbitrator:
Held: It is apposite to understand that s.12(5) does not prohibit unilateral appointment of an arbitrator – It provides that whenever an appointment of an arbitrator is hit by the bar u/s.12(5), the arbitrator would be ineligible to act, irrespective of whether the appointment was unilateral or with consent of both parties – In such circumstances, the parties may, in the manner provided under the proviso, waive the ineligibility. [Para 60] Arbitration and Conciliation Act, 1996 – s.12(5) – Unilateral appointment of a sole arbitrator is void ab initio: Held: The unilateral appointment of a sole arbitrator is void ab initio, and the sole arbitrator so appointed is de jure ineligible to act as an arbitrator in terms of s.12(5) r/w. the Seventh Schedule of the Act, 1996. [Para 68]
Arbitration and Conciliation Act, 1996 – s.21 – Clarification regarding notice u/s.21of the Act, 1996:
Held: A notice u/s.21 of the Act, 1996, is an expression to set the arbitration agreement into motion upon arising of disputes between the parties – The section states that the date of commencement of arbitration would be the date on which the recipient receives the notice from the claimant that the dispute be referred to arbitration – The notice acts as a communication that the sender is aggrieved and seeks to invoke the arbitration agreement – It does not, by itself, operate as consent to any appointment to be made in the future. [Para 70]
Arbitration and Conciliation Act, 1996 – Proviso to s.12 (5) – Essentials of the proviso to s.12(5):
Held: i) The parties can waive their right to object under subsection (5) of s.12; ii) The right to object under the sub-section can be waived only subsequent to a dispute having arisen between the parties; iii) The waiver must be in the form of an express agreement in writing – The proviso to sub-section (5) of s.12 stipulates that parties, after disputes have arisen, must expressly agree in writing to waive the ineligibility of the proposed arbitrator – This impliedly means that the parties are waiving their right to object to the arbitrator’s ineligibility in terms of s.12(5) of the Act, 1996. [Paras 75, 76]
Arbitration and Conciliation Act, 1996 – sub-section (5) of s.12 – An express agreement in writing, waiving the bar under sub-section (5) of s.12:
Held: It is only through an express agreement in writing, waiving the bar under sub-section (5) of s.12, that the other party can be said to have voluntarily consented to the unilateral appointment of such an arbitrator – The proviso conveys that the arbitrator, although ineligible to be appointed, yet can continue to perform his functions, as it is oriented towards facilitating party autonomy – Thus, the proviso reinforces party autonomy and equal treatment of parties in arbitration – In other words, even though the appointment had been made by one of the parties, by the act of entering into an agreement in writing, the other party expresses its consent – The manner of the agreement prescribed by the statute demonstrates voluntariness by the parties – The ineligibility of an arbitrator can be waived only by an express agreement in writing – In the present case, there is no agreement in writing, after the disputes arose, waiving the ineligibility of the sole arbitrator or the right to object u/s.12(5) of the Act, 1996. [Paras 81, 82, 89]
Arbitration and Conciliation Act, 1996 – sub-section (5) of s.12, s.21, s.33 – What cannot be countenanced to mean “an express agreement in writing” within the meaning of the proviso to sub-section (5) of s.12 of the Act, 1996: Held: A notice invoking the arbitration clause u/s.21 of the Act, 1996, a procedural order, submission of statement of claim by the appellants, the filing an application seeking interim relief, or a reply to an application u/s.33 of the Act, 1996, cannot be countenanced to mean “an express agreement in writing” within the meaning of the proviso to sub-section (5) of s.12 of the Act, 1996. [Para 96] Arbitration and Conciliation Act, 1996 – s.12(5), s.14 – Where a party is aggrieved by the ineligibility of an arbitrator: Held: Where a party is aggrieved by the ineligibility of an arbitrator u/s.12(5), it may directly approach the court u/s.14 of the Act, 1996 – There is no doubt that when an arbitrator is ineligible u/s. 12(5), i.e., he lacks inherent jurisdiction to hold the position, his mandate stands automatically terminated, and it is not necessary for the parties to challenge his appointment u/s.12 r/w. s.13 – When such a challenge is made, the court is required to determine whether the arbitrator suffers from de jure inability u/s.14(1)(a) of the Act, 1996. [Para 102]
Arbitration and Conciliation Act, 1996 – s.14 and s.15(2) – Terminating mandate of arbitrator and substituting arbitrator: Held: An application u/s. 14 is made for the purpose of terminating the mandate of the arbitrator, and, consequently, a substitute arbitrator is appointed in terms of s.15(2) – As regards where the mandate of the arbitrator has been terminated with the consent of both the parties u/s. 15(1)(b), it is not required for the parties to approach the court to seek termination of the mandate of the arbitrator, because it has been terminated by the parties themselves – The substitution of the arbitrator is sought because the termination of mandate of the arbitrator does not result in the termination of arbitral proceedings – The proceedings remain intact, only the composition of the arbitral tribunal changes. [Paras 103, 104] Arbitration and Conciliation Act, 1996 – s.34 – Challenge to the ineligibility of the arbitrator after arbitral award has been passed:
Held: When an award has been passed, the proceedings before the arbitral tribunal conclude, leaving no possibility of substituting the arbitrator at this stage – In other words, once an award is passed, the mandate of the arbitral tribunal also arrives at a conclusion – In such circumstances, a party aggrieved by the arbitrator’s ineligibility may challenge the award by filing an application u/s.34 of the 1996 Act, as an award passed by an ineligible arbitrator is nullity, non-est, or void ab initio, and against the public policy of India. [Para 109] Arbitration and Conciliation Act, 1996 – Challenge to the ineligibility of the arbitrator at any stage of the proceedings: Held: A challenge to an arbitrator’s ineligibility could be raised at any stage because an award passed in such circumstance is nonest, i.e., it carries no enforceability or recognition in law. [Para 113] Arbitration and Conciliation Act, 1996 – s.12(5) – Obligation upon the arbitrator:
Held: An arbitrator is better equipped with the position of law on appointments, more particularly, unilateral appointments – Therefore, it becomes incumbent upon the arbitrator that upon entering reference and at the very first hearing, to ensure from the parties that they are willing to participate in the proceedings and to insist upon a written agreement waiving the requirement of s.12(5) of the Act, 1996. [Para 121]
Arbitration and Conciliation Act, 1996 – When party does not appear despite receipt of notice:
Held: If any party does not appear despite receipt of notice, the arbitrator shall not proceed further and shall immediately withdraw from the arbitral proceedings – The arbitrator must, along with the waiver agreement, record the minutes even when the parties are cooperating – This would certainly save time and avoid multiplicity of proceedings. [Para 122]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Ankit Gyan. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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