Arbitration and Conciliation Act, 1996 – s.11 and sub-section
(5) of s.12 r/w. Seventh Schedule – Appointment of an Arbitrator – On 31.03.2015, the respondent and the petitioner-Sahkari Sangh entered into a distributorship agreement for distribution of milk and butter – Dispute arose between the parties – Clause 13 of the distribution agreement contained an arbitration clause, which provided that all disputes and differences arising out of or in any way touching or concerning the agreement, shall be referred to the sole Arbitrator, the Chairman of the petitioner Sangh – The respondent approached the sole Arbitrator-Chairman as per clause
13 of the agreement – During the pendency of the Arbitration proceedings, the respondent approached the High Court for appointment of an Arbitrator u/s.11 of the Act – The High Court appointed the former District and Sessions Judge to act as an arbitrator – Before the Supreme Court, the petitioner submitted that the High Court erred in appointing the arbitrator other than the arbitrator mentioned in clause 13 of the agreement – Held: Subsection (5) of s.12 read with Seventh Schedule made it clear that if the arbitrator falls in any one of the categories specified in the Seventh Schedule, he becomes ‘ineligible’ to act as an arbitrator – Applying the law laid down by the Supreme Court in its various decisions and considering the object and purpose of insertion of sub-section (5) of s.12 r/w. Seventh Schedule to the Act, the Chairman of the petitioner Sangh can certainly be held ‘ineligible’ to continue as an arbitrator – Though in the Seventh Schedule the word ‘Chairman’ is specifically not mentioned but at the same time it would fall in the category of clause 1; clause 2; clause 5; clause 12 and hence would become ‘ineligible’ – Once the sole arbitrator-Chairman is ‘ineligible’ to act as an arbitrator, he loses mandate to continue as a sole arbitrator – Therefore, the High Court has not committed any error in appointing the arbitrator other than the sole arbitrator.
Dismissing the Special Leave Petitions, the Court HELD: 1. In the case of Bharat Broadband Network Limited, it is observed that Sub-section (5) of Section 12 read with Seventh Schedule made it clear that if the arbitrator falls in any one of the categories specified in the Seventh Schedule, he becomes ‘ineligible’ to act as an arbitrator. It is further observed that once he becomes ‘ineligible’, it is clear that he then become dejure unable to perform his functions inasmuch as in law, he is regarded as ‘ineligible’. It further is observed in the said decision that where a person becomes ineligible to be appointed as an arbitrator there is no question of challenge to such arbitrator before such arbitrator in such a case i.e. a case which falls under Section 14(1)(a) of the Act gets attracted inasmuch as the arbitrator becomes, as a matter of law (i.e., de jure), unable to perform his functions under Section12(5), being ineligible to be appointed as an arbitrator and this being so, his mandate automatically terminates, and he shall then be substituted by another arbitrator. [Para 7][780-D-G]
2. Now so far as the submission on behalf of the petitioners that in view of Section 58 of the Rajasthan Cooperative Societies Act, 2001, the dispute between the parties is to be resolved by the Registrar only and as per Bye Laws 30 of Rajasthan Cooperative Societies Act, 2001 shall be applicable and therefore no court shall have jurisdiction and therefore the dispute referred to the former District Judge is unsustainable has no substance. It cannot be disputed that Arbitration Act is a special Act. Even Sub-section (5) of Section 12 also states with non obstante clause. In the distributorship agreement dated 31.03.2015, there is a provision to resolve dispute through arbitration. Despite Section
58 of the Rajasthan Cooperative Societies Act, 2001, there is an agreement between the parties to resolve the dispute through arbitrator – Chairman. Parties are bound by the agreement and the arbitration clause contained in the Agreement dated 31.03.2015. Therefore, neither Section 58 of the Rajasthan Cooperative Societies Act, 2001 shall not be applicable at all nor the same shall come in the way of appointing the arbitrator under the Arbitration Act. [Para 7.1][780-G-H; 781-A-C]
3. Now the next question which is required to consider is whether the Chairman who is an elected member of the petitioner Sahkari Sangh can be said to be ‘ineligible’ under Sub-section (5) of Section 12 read with Seventh Schedule to the Act or not. It is the case on behalf of the petitioner that in the Seventh Schedule to the Act ‘Chairman’ is not mentioned and only Manager, Director or part of the Management can be said to be ineligible. The aforesaid has no substance at all. Disqualification/ineligible under Sub-section (5) of Section 12 read with Seventh Schedule to the Act is to be read as a whole and considering the object and purpose for which Sub-section (5) of Section 12 read with Seventh Schedule to the Act came to be inserted. Sub-section (5) of Section
12 read with Seventh Schedule has been inserted bearing in mind the ‘impartiality and independence’ of the arbitrators. It has been inserted with the purpose of ‘neutrality of arbitrators’. Independence and impartiality of the arbitrators are the hallmarks of any arbitration proceedings as observed in the case of Voestalpine Schienen. Rule against bias is one of the fundamental principles of natural justice which apply to all judicial proceedings and quasi-judicial proceedings and it is for this reason that despite the contractually agreed upon, the persons mentioned in Sub-section (5) of Section 12 read with Seventh Schedule to the Act would render himself ineligible to conduct the arbitration. [Para 8][781-C-G]
4. Applying the law laid down by this Court in the aforesaid decisions and considering the object and purpose of insertion of Sub-section (5) of Section 12 read with Seventh Schedule to the Act, the Chairman of the petitioner Sangh can certainly be held to be ‘ineligible’ to continue as an arbitrator. Though in the Seventh Schedule the word ‘Chairman’ is specifically not mentioned but at the same time it would fall in the category of Clause 1; Clause 2; Clause 5; Clause 12. In that view of the matter, the Chairman who is elected member/Director of the Sangh, can certainly be said to be ‘ineligible’ to become an arbitrator as per Sub-section (5) of Section 12 read with Seventh Schedule to the Act. [Para 9 and 9.1][783-A-B; 783-D-E]
5. Once the sole arbitrator – Chairman is ‘ineligible’ to act as an arbitrator to resolve the dispute between the parties in view of Sub-section (5) of Section 12 read with Seventh Schedule to the Act he loses mandate to continue as a sole arbitrator. Therefore, it cannot be said that the High Court has committed any error in appointing the arbitrator other than the sole arbitrator – Chairman as per Clause 13 of the Agreement in exercise of powers, under Section 11 read with Section 14 of the Act. [Para 10][786-A-B]
Bharat Broadband Network Limited v. United Telecoms Limited, (2019) 5 SCC 755 : [2019] 6 SCR 97;
Voestalpine Schienen GMBH v. Delhi Metro Rail
Corporation Limited, (2017) 4 SCC 665 : [2017] 1 SCR
798 – relied on.
S.B.P. & Co. v. Patel Engineering Ltd. & Anr., (2005) 8 SCC : [2005] 4 Suppl. SCR 688; Trf Ltd v. Energo Engineering Projects Ltd., (2017) 8 SCC 377 : [2017]
7 SCR 409 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.