2017 (11) TMI 1814 - HC - Indian Laws

Appointment of an Arbitrator - Whether a party, who appoints an arbitrator knowing fully well that such arbitrator is suffering from a disability that falls under any of the categories specified in the Seventh Schedule of the Act and shall be ineligible to be appointed as an arbitrator, can later challenge his appointment on the ground that he was ineligible to be appointed as an arbitrator under Section 12(5) of the Act? HELD THAT - The petitioner, knowing fully well that the arbitrator suffered from an ineligibility in terms of Section 12(5) of the Act proceeded to nominate him as a Sole Arbitrator after the disputes had arisen between the parties and the Respondent concurred in such appointment and even proceeded to file its Statement of Claim before the Arbitrator. Though it was contended that the appointment was made before the decision in TRF LTD. VERSUS ENERGO ENGINEERING PROJECTS LTD. 2017 (7) TMI 1288 - SUPREME COURT , this would not help the petitioner inasmuch as TRF Ltd. only applied Section 12(5) of the Act to the facts of the case therein. The appointment was accepted by the respondent who even proceeded to file the Statement of Claim before such arbitrator, without objections to his appointment or jurisdiction. Therefore, the disputes having arisen between the parties, both parties waived the applicability of Section 12(5) of the Act. The appointment being in writing and the filing of the Statement of Claim without any reservation also being in writing, in my opinion, in the facts of the case, the same would amount to an express agreement in writing as required under proviso to Section 12(5) of the Act. Petition dismissed.

Summary

Issues Involved:
1. Applicability of Section 12(5) of the Arbitration and Conciliation Act, 1996.
2. Waiver of ineligibility under Section 12(5) by express agreement.
3. Timeliness and validity of objections to arbitrator's appointment.
4. Legislative intent behind the Arbitration and Conciliation Act, 1996.

Issue-wise Detailed Analysis:

1. Applicability of Section 12(5) of the Arbitration and Conciliation Act, 1996:
The petitions raised the question of whether a party can challenge the appointment of an arbitrator under Section 12(5) of the Act if the party had initially appointed the arbitrator knowing that the arbitrator was ineligible under the Seventh Schedule. The judgment referenced the Supreme Court's decision in TRF Ltd. Vs Energo Engineering Projects Ltd., which held that an ineligible arbitrator under the Seventh Schedule cannot nominate another arbitrator. The judgment emphasized that the ineligibility extends to the nominee of an ineligible arbitrator.

2. Waiver of ineligibility under Section 12(5) by express agreement:
The court considered whether the parties had waived the applicability of Section 12(5) by an express agreement in writing, as allowed by the proviso to Section 12(5). The court noted that the petitioner had appointed the arbitrator after the disputes had arisen and the respondent had accepted this appointment and participated in the arbitration proceedings without objection. The court concluded that the parties had effectively waived the applicability of Section 12(5) through their conduct and written submissions, thereby fulfilling the conditions laid out by the Supreme Court in TRF Ltd.

3. Timeliness and validity of objections to arbitrator's appointment:
The court examined whether the petitioner's challenge to the arbitrator’s appointment was timely and valid. The petitioner raised the objection only after participating in the arbitration proceedings for several months. The court referred to Sections 4, 13(2), and 16(2) of the Act, which emphasize the importance of raising objections promptly. The court found that the petitioner’s delay in raising the objection indicated a waiver of the right to challenge the arbitrator’s appointment.

4. Legislative intent behind the Arbitration and Conciliation Act, 1996:
The court highlighted the legislative intent to ensure the neutrality of arbitrators and to minimize judicial intervention in arbitration proceedings. The judgment referenced the Law Commission's recommendations and the Supreme Court's observations in Voestalpine Schienen GMBH v. Delhi Metro Rail Corpn. Ltd., which underscored the importance of impartiality and independence of arbitrators. The court stressed that allowing the petitioner to challenge the arbitrator’s appointment after participating in the proceedings would undermine the objective of providing a speedy resolution of disputes and would encourage obstructive tactics.

Conclusion:
The court dismissed the petition, holding that the petitioner had waived the right to challenge the arbitrator’s appointment by its conduct and participation in the arbitration proceedings. The judgment reinforced the principle that objections to an arbitrator’s eligibility must be raised promptly to align with the legislative intent of ensuring efficient and impartial arbitration processes. The court emphasized that the parties' actions constituted an express agreement in writing to waive the applicability of Section 12(5), thereby upholding the arbitrator’s appointment.