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2017 (9) TMI 675 - SC - Indian LawsArbitration proceedings - delays in the project - Appellant-Aravali Power Company Pvt. Ltd., scheduled date of completion of work was 19.05.2011 but the progress of work was quite slow which compelled the Appellant to cancel certain remaining works by its letters dated 18.07.2014, 24.10.2014, 30.06.2015 and 08.07.2015 - Held that - In the present case, the Arbitrator undoubtedly is an employee of the Appellant but so long as there is no justifiable apprehension about his independence or impartiality, the appointment could not be rendered invalid and unenforceable. The exercise was undertaken by the High Court, in order to make neutrality or to avoid doubt in the mind of the petitioner and ensure that justice must not only be done and must also be seen to be done. In effect, the High Court applied principles of neutrality and impartiality which have been expanded by way of Amendment Act, even when no cause of action for exercise of power under Section 11(6) had arisen. The procedure as laid down in unamended Section 12 mandated disclosure of circumstances likely to give rise to justifiable doubts as to independence and impartiality of the arbitrator. It is not the case of the Respondent that the provisions of Section 12 in unamended form stood violated on any count. In any case the provision contemplated clear and precise procedure under which the arbitrator could be challenged and the objections in that behalf under Section 13 could be raised within prescribed time and in accordance with the procedure detailed therein. The record shows that no such challenge was raised within the time and in terms of the procedure prescribed. As a matter of fact, the Respondent had participated in the arbitration and by its communication dated 04.12.2015, had sought extension of time to file its statement of claim. In the circumstances, the High Court was clearly in error in exercising jurisdiction in the present case and it ought not to have interfered with the process and progress of arbitration. We therefore accept the challenge raised by the Appellant and reject that raised by the Respondent.
Issues Involved:
1. Validity of the appointment of the Arbitrator. 2. Applicability of the Arbitration and Conciliation (Amendment) Act, 2015. 3. Justifiable doubts regarding the independence and impartiality of the appointed Arbitrator. 4. Jurisdiction of the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996. 5. Procedure for challenging the Arbitrator under Sections 12, 13, and 14 of the Arbitration and Conciliation Act, 1996. Issue-wise Detailed Analysis: 1. Validity of the Appointment of the Arbitrator: The contract between the parties included Clause 56 of the General Conditions of Contract (GCC), which stipulated arbitration by the Project In-charge or another person appointed by the Chairman and Managing Director. The Appellant appointed its Chief Executive Officer (CEO) as the sole Arbitrator, which was contested by the Respondent. The Supreme Court held that the appointment of the Arbitrator was in accordance with Clause 56 of the GCC and thus valid. The Court emphasized that the mere fact that the Arbitrator is an employee of one of the parties does not automatically render the appointment invalid or unenforceable. The Court referenced the decision in Indian Oil Corporation Ltd. v. Raja Transport Private Ltd. (2009) 8 SCC 520, which clarified that an employee arbitrator is not ipso facto a ground for presumption of bias or partiality. 2. Applicability of the Arbitration and Conciliation (Amendment) Act, 2015: The arbitration was invoked on 29.07.2015, and the Arbitrator was appointed on 19.08.2015, before the Amendment Act came into force on 23.10.2015. The Supreme Court noted that the statutory provisions in force before the Amendment Act would govern the present controversy. The Court concluded that the principles of neutrality and impartiality expanded by the Amendment Act were not applicable in this pre-amendment case. 3. Justifiable Doubts Regarding the Independence and Impartiality of the Appointed Arbitrator: The Respondent raised objections regarding the independence and impartiality of the Arbitrator, citing that the Arbitrator was the CEO of the Appellant and had dealt with similar contracts. The Supreme Court found that there was no justifiable apprehension about the Arbitrator's independence or impartiality. The Court highlighted that the Arbitrator was not the Engineer In-charge or the day-to-day In-charge of the work and that the hierarchy did not show any direct subordination to the officers whose decisions were disputed. 4. Jurisdiction of the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996: The High Court set aside the appointment of the Arbitrator and directed the Appellant to suggest three panel Arbitrators for the Respondent to choose from. The Supreme Court held that the High Court erred in exercising jurisdiction under Section 11(6) as the conditions specified in clauses (a), (b), and (c) were not satisfied. The Court reiterated that the terms of the agreement should be adhered to as closely as possible, and the jurisdiction of the Court under Section 11(6) arises only if the specified conditions are met. 5. Procedure for Challenging the Arbitrator under Sections 12, 13, and 14 of the Arbitration and Conciliation Act, 1996: The Supreme Court noted that the Respondent did not follow the prescribed procedure for challenging the Arbitrator under Sections 12 and 13. The Respondent participated in the arbitration proceedings and sought an extension of time to file its statement of claim. The Court emphasized that the procedure detailed in Sections 12 and 13 must be followed, and objections regarding the Arbitrator's independence or impartiality should be raised within the prescribed time and manner. Conclusion: The Supreme Court allowed the appeals filed by the Appellant and dismissed those filed by the Respondent. The Court directed that the arbitration, in pursuance of the appointment of the Arbitrator on 19.08.2015, shall proceed in accordance with law. The High Court's decision to interfere with the arbitration process was deemed erroneous, and the appointment of the Arbitrator was upheld. The appeals were disposed of without any order as to costs.
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