2019 (1) TMI 187 - SC - Indian Laws

Jurisdiction - appointment of the nominee arbitrator on behalf of the State prior to the expiry of the 30 days period requested by the Petitioner - supersession of the arbitration clause in the agreement which provided for a three-member arbitration panel - Held that - The present 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. It is also relevant to state that 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 mandate of the three-member arbitral tribunal constituted under the ICA Rules on 05.12.2015 stands terminated. The Sole Arbitrator shall proceed in continuation of the previously constituted arbitral tribunal. The material already on record shall be deemed to have been received by the Sole Arbitrator - appeal disposed off.

Summary

Issues:
Challenge to High Court Order on Arbitration Tribunal Constitution and Jurisdiction

Analysis:
The Civil Appeal filed by the State of Haryana challenges the High Court's Order dated 01.03.2018 regarding the constitution of the Arbitration Tribunal. The dispute arose from a works contract executed between the State and M/s. G. F. Toll Road Pvt. Ltd. The agreement contained an Arbitration Clause under which each party was to nominate an arbitrator, with the third arbitrator appointed by the Indian Council of Arbitration (ICA). Disputes emerged, leading to objections by the ICA regarding the State's nominee arbitrator, Mr. M.K. Aggarwal, based on his past employment with the State. The ICA appointed an arbitrator on behalf of the State, which the State contested as arbitrary and illegal.

The High Court dismissed the State's Civil Revision Petition, stating that jurisdictional issues should be raised before the arbitral tribunal under Section 16 of the Arbitration and Conciliation Act, 1996. The Court held that in the absence of a provision for appointing a substitute arbitrator in the agreement, the rules of the institution conducting the arbitration would apply. The State's subsequent application under Section 16 was also dismissed by the Arbitral Tribunal.

The Supreme Court analyzed the provisions of Section 15(2) of the Act, emphasizing that a substitute arbitrator must be appointed according to the rules applicable to the replaced arbitrator. The Court referred to precedents, highlighting that the procedure for appointing the original arbitrator applies to a substitute arbitrator. In this case, the ICA's premature appointment of an arbitrator for the State was deemed unjustified and against the ICA Rules.

The objections raised by the ICA regarding Mr. M.K. Aggarwal's independence and impartiality were found baseless. The Court cited legal principles and the 1996 Act, noting that a former employee's independence as an arbitrator is not automatically compromised. The objections were considered untenable, especially since they were raised before the 2015 Amendment Act, which introduced disqualification grounds for arbitrators.

In conclusion, both parties agreed to arbitration by a Sole Arbitrator, superseding the three-member panel. Justice S.S. Nijjar (Retd.) was appointed as the Sole Arbitrator to resolve disputes from the Concession Agreement. The previously constituted tribunal's mandate was terminated, and the Sole Arbitrator would continue the proceedings with the existing record.

The Supreme Court set aside the High Court's judgment, disposing of the Appeal accordingly.