Arbitration and Conciliation Act, 1996 – ss. 15, 15(2) – Termination of mandate and substitution of arbitrator – Government works contract – Dispute between the parties – Nomination of arbitrator in terms with the dispute resolution clause in the agreement – Indian Council of Arbitration-ICA raised objection to arbitrator nominated by the State that being a retired employee of the State, his integrity and impartiality doubtful – State sought 30 days time to appoint a substitute arbitrator – Meanwhile, ICA appointed a nominee arbitrator on behalf of the State, as also Presiding arbitrator – Challenge to, by the State by filing application u/s. 15 before the District Judge as also objection before the arbitral tribunal u/s. 16 – District Court held the petition not maintainable since the tribunal had been constituted – Revision Petition before the High Court – Dismissal of – On appeal, held: High Court failed to take note of s. 15(2) which provides that a substitute arbitrator must be appointed according to the rules that are applicable for the appointment of the arbitrator being replaced – ICA could not have usurped the jurisdiction over appointment of the nominee arbitrator on behalf of the State prior to the expiry of the 30 days’ period requested by the State – Appointment of the nominee arbitrator on behalf of the State by the ICA unjustified and contrary to the Rules of the ICA itself – Objection of reasonable apprehension of bias raised as regards the arbitrator nominated by the State wholly unjustified and unsubstantiated – Thus, the order passed by the High Court set aside – On basis of the mutual agreement between both the parties, Justice S.S. Nijjar (Retd.) appointed as the Sole Arbitrator to adjudicate the disputes arising out of the Agreement. Disposing of the appeal, the Court
HELD: 1.1 The High Court while considering the
application under Section 15 of the Arbitration and Conciliation Act, 1996 failed to take note of the provisions of Section 15(2) of the Act. Section 15(2) provides that a substitute arbitrator must be appointed according to the rules that are applicable for the appointment of the arbitrator being replaced. This would imply that the appointment of a substitute arbitrator must be according to the same procedure adopted in the original agreement at the initial stage. The provisions of Section 15(2) require that when the mandate of an arbitrator terminates either by his withdrawal from office, or pursuant to an agreement by the parties, or for any reason, a substitute arbitrator shall be appointed according to the rules applicable to the appointment of the arbitrator being replaced. [Paras 3.1, 3.2][276-F-H; 277-C]
1.2 Clause 39.2.2. of the agreement expressly provided that each party shall nominate one arbitrator and the third arbitrator shall be appointed in accordance with the Rules of the ICA. [Para 3.3][277-C-D]
1.3 The appellant-State had requested for 30 days ’time to appoint another nominee arbitrator, after objections were raised by the ICA to the first nomination. The ICA declined to grant the period of 30 days, and instead appointed the arbitrator on behalf of the Appellant-State. The ICA could have filled up the vacancy only if the Appellant-State had no intention of filling up the vacancy. The ICA could not have usurped the jurisdiction over appointment of the nominee arbitrator on behalf of the State prior to the expiry of the 30 days’ period requested by the Petitioner. The appointment of the nominee arbitrator on behalf of the Appellant-State by the ICA was unjustified and contrary to the Rules of the ICA itself. [Paras 3.4, 3.5][277-E-G]
1.4 The 1996 Act does not disqualify a former employee from acting as an arbitrator, provided that there are no justifiable doubts as to his independence and impartiality. The fact that the arbitrator was in the employment of the State of Haryana over 10 years ago, would make the allegation of bias clearly untenable. [Para 3.9][278-F-G]
1.5 The instant case is governed by the pre-amended 1996 Act. Even as per the 2015 Amendment Act which has inserted the Fifth Schedule to the 1996 Act which contains grounds to determine whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. Entry 1 of the Fifth Schedule and the Seventh Schedule are identical. The Entry indicates that a person, who is related to a party as an employee, consultant, or an advisor, is disqualified to act as an arbitrator. The words “is an” indicates that the person so nominated is only disqualified if he/she is a present/current employee, consultant, or advisor of one of the parties. An arbitrator who has “any other” past or present “ business relationship “ with the party is also disqualified. The word “other” used in Entry 1, would indicate a relationship other than an employee, consultant or an advisor. The word “other” cannot be used to widen the scope of the entry to include past/former employees. [Para 3.10][278-G-H; 279-B-D]
1.6 The ICA made only a bald assertion that the nominee arbitrator was a retired employee of the Appellant-State, and as such would not be independent and impartial. The objection of reasonable apprehension of bias raised was wholly unjustified and unsubstantiated, particularly since the nominee arbitrator was a former employee of the State over 10 years ago. The apprehension of the respondents was hence unjustified since the test to be applied for bias is whether the circumstances are such as would lead to a fair-minded and informed person to conclude that the arbitrator was infact biased. This would not disqualify him from acting as an arbitrator. Mere allegations of bias are not a ground for removal of an arbitrator. Furthermore, the appointment had been made prior to the 2015 Amendment Act when the Fifth Schedule was not inserted. Hence, the objection raised by the ICA was untenable on that ground also. The judgment passed by the High Court is set aside [Paras 3.11, 3.12][279-E-G]
1.7 During the conclusion of arguments, the Counsel for both parties mutually agreed to the appointment of Justice S.S. Nijjar (Retd.) as the Sole Arbitrator to adjudicate the disputes arising out of the Concession Agreement. The mandate of the three-member arbitral tribunal constituted under the ICA Rules is terminated. The Sole Arbitrator shall proceed in continuation of the previously constituted arbitral tribunal. [Para 4][279-H; 280-A-C]
ACC Ltd. v. Global Cements Ltd. (2012) 7 SCC 71:[2012]
6 SCR 215 – referred to.
Locabail Ltd. v. Bayfield Properties 2000 (1) All ER 65; Re Medicaments and related Classes of Goods (No.2) 2002 (1) All ER 465 – 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.