Ellora Paper Mills Limited vs The State of Madhya Pradesh

15 of the Arbitration Act, 1966 seeking termination of mandate of the originally constituted Arbitral Tribunal called as “Stationery Purchase Committee” on the ground that the Committee comprised of officers of the Respondent and as such had rendered themselves ineligible to continue as arbitrators in view of s.12(5) read with Seventh Schedule – The petition further requested for the appointment of a new arbitrator – High Court held that the Amendment Act, 2015 which inserted s.12(5) was effective w.e.f. 23.10.2015 and could not have retrospective operation in the arbitration proceedings already commenced unless the parties otherwise agreed and therefore when in the present case the Arbitral Tribunal was constituted much prior to the Amendment Act, 2015 and the Arbitral Tribunal commenced its proceedings, s.12(5) was not applicable – Held: The Arbitral Tribunal-Stationery Purchase Committee consisted of officers of the Respondent-State – Therefore, as per Amendment Act, 2015 - sub-section (5) of s.12 r/w Seventh Schedule, all of them became ineligible to become arbitrators and to continue as arbitrators – s.12 was amended by Amendment Act, 2015 based on recommendations of the Law Commission, which specifically dealt with the issue of “neutrality of arbitrators” – To achieve the main purpose for amending the provision, namely, to provide for “neutrality of arbitrators”, sub-section (5) of s.12 lays down that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subject matter of the dispute falls under any of the categories specified in the Seventh Schedule, he shall be ineligible to be appointed as an arbitrator – In such an eventuality, i.e., when the arbitration clause is found to be foul with the amended provision, the appointment of the arbitrator would be beyond the pale of the arbitration agreement, empowering the Court to appoint such an arbitrator as may be permissible – That would be the effect of the non obstante clause contained in sub-section (5) of s.12 and the other party cannot insist upon the appointment of the arbitrator in terms of the arbitration agreement – In the present case, the Stationery Purchase Committee-Arbitral Tribunal comprising of officers of the respondent-State were all ineligible to become and/or to continue as arbitrators in view of the mandate of sub-section

(5) of s.12 r/w Seventh Schedule – Such an Arbitral Tribunal cannot be permitted to continue and therefore a fresh arbitrator has to be appointed as per the Arbitration and Conciliation Act, 1996. Allowing the appeal, the Court

HELD:1.1. The present application was preferred before the High Court invoking Section 14 read with sections 11 and 15 of the Arbitration Act, 1966 seeking termination of the mandate of the originally constituted Arbitral Tribunal and to appoint a new arbitrator. However, the fact remains that after the constitution of the Arbitral Tribunal in the year 2001, no further steps whatsoever were taken in arbitration proceedings and therefore technically it could not be said that the arbitration proceedings by the Arbitral tribunal- Stationery Purchase Committee commenced. [Para 6][408-E-H]

1.2. The Arbitral Tribunal-Stationery Purchase Committee consisted of officers of the Respondent-State. Therefore, as per Amendment Act, 2015-Sub-section (5) of Section 12 read with Seventh Schedule, all of them have become ineligible to become arbitrators and to continue as arbitrators. Section 12 has been amended by Amendment Act, 2015 based on the

recommendations of the Law Commission, which specifically dealt with the issue of “neutrality of arbitrators”. To achieve the main purpose for amending the provision, namely, to provide for “neutrality of arbitrators”, sub-section (5) of Section 12 lays down that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subject matter of the dispute falls under any of the categories specified in the Seventh Schedule, he shall be ineligible to be appointed as an arbitrator. In such an eventuality, i.e., when the arbitration clause is found to be foul with the amended provision, the appointment of the arbitrator would be beyond the pale of the arbitration agreement, empowering the Court to appoint such an arbitrator as may be permissible. That would be the effect of the non obstante clause contained in sub-section (5) of Section 12 and the other party cannot insist upon the appointment of the arbitrator in terms of the arbitration agreement. It cannot be disputed that in the present case, the employees of the Respondent as Members, has lost its mandate by operation of law in view of Section 12(5) read with Seventh Schedule. [Para 7][409-A-E]

1.3. A former Judge of Supreme Court is appointed to act as an arbitrator to adjudicate upon/resolve the dispute between the parties. [Para 11][419-F]

TRF Limited v. Energo Engineering Projects Limited (2017) 8 SCC 377 : [2017] 7 SCR 409 and Bharat Broadband Network Limited v. United Telecoms Limited (2019) 5 SCC 755 : [2019] 6 SCR 97 – relied on. Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Limited (2017) 4 SCC 665 : [2017] 1 SCR 798; Aravali Power Co. Power Ltd. v. Era Infra Engineering (2017) 15 SCC 32; Indian Oil Corporation Ltd. v. Raja Transport Pvt. Ltd. (2009) 8 SCC 520 : [2009] 13 SCR 510; ACE Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corporation Ltd. (2007) 5 SCC 304 : [2007] 4 SCR 777; Union of India v. M. P. Gupta (2004) 10 SCC 504; Union of India v. Parmar

Construction Co. (2019) 15 SCC 682 : [2019] 5 SCR 1009; Union of India v. Pradeep Vinod Construction Co. (2020) 2 SCC 464 : [2012] 17 SCR 64; S. P. Singla Constructions Pvt. Ltd. v. State of Himachal Pradesh (2019) 2 SCC 488 : [2018] 14 SCR 1005; Executive Engineer, Irrigation Division, Puri v. Gangaram Chhapolia (1984) 3 SCC 627; Secretary to Government Transport Department, Madras v. Munusamy Mudaliar (1988) Supp SCC 651 : [1988] 2 Suppl. SCR 673; International Authority of India v. K. D. Bali (1988) 2 SCC 360 : [1988] 3 SCR 370; S. Rajan v. State of Kerala (1992) 3 SCC 608 : [1992] 3 SCR 649; Indian Drugs & Pharmaceuticals v. Indo-Swiss Synthetics Germ Manufacturing Co. Ltd. (1996) 1 SCC 54 : [1995] 5 Suppl. SCR 180; Denel (Proprietary) Ltd. v. Govt. of India, Ministry of Defence (2012) 2 SCC 759 : [2012]

2 SCR 897; Bipromasz Bipron Trading SA v. Bharat Electronics Ltd. (2012) 6 SCC 384 : [2012] 5 SCR 743 – referred to.

Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited v. Ajay Sales & Suppliers 2021 SCC OnLine SC 730 – referred to.