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TMI Blog2017 (9) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... ure 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. - Civil Appeal Nos. 12627-12628 of 2017@, (Special Leave Petition (Civil) Nos.25206-25207 of 2016) And Civil Appeal Nos. 12629-12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, Chairman and Managing Directors, NTPC limited (Formerly National Thermal Power Corporation Ltd.), shall appoint another person to act as Arbitrator in accordance with the terms of the contract 3. According to the 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. By its letter dated 29.07.2015 the Respondent alleged that the delays in the project were not attributable to the Respondent and after setting out certain grievances, the letter thereafter sought to invoke arbitration submitting further that arbitration be through a retired Judge of the High Court, the relevant portion of the letter being:- In view of the above circumstances and inaction of APCPL towards settlement of our claims/payments, we hereby invoke Arbitration Clause of the Contract Agreement request your good self to appoint Arbitrator for settlement of our claims according to Clause 56 of GCC of the Contract Agreement. However, we want to draw your attention to the legal point that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent to the Arbitrator seeking extension of time to file its statement of claim. It was stated, inter alia: In the last-hearing held on 07.10.2015 the Claimant was given 60 days time to file its Statement of Claim. In this connection it is to state that we need to collect some more data and files from our other offices to make the Statement of Claim. For that purpose, we need about one month further time to submit our Statement of Claim. It is therefore, requested that the Ld. Sole Arbitrator may kindly grant one month further time to the Claimant to file its Statement of Claim. According to the record, the Arbitrator granted one month s time, as prayed for. 6. On 01.01.2016, the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as the Amendment Act ) was gazetted and according to Section 1(2), the Amendment Act was deemed to have come into force on 23rd October, 2015. 7. For the first time on 12.01.2016, the Respondent sought to challenge the Arbitrator and raised objection regarding constitution of the arbitral tribunal as under: In reference to the above referred communications addressed by us, we hereby state that the constituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em which requires reconsideration, which is more so in deference to the specific provisions of the new Act reiterating the need for an independent and impartial Arbitrator. VII That in furtherance of the aforementioned spirit as reiterated by the Hon ble Courts, the Act has also been suitably amended by the Legislature, whereby, inter alia, it has been expressly provided that an Arbitrator who is an Employee, Manager, Director or part of the Management or has a similar controlling influence in one of the parties to the arbitration, is a valid ground giving rise to justifiable doubts as to the independence or impartiality of an Arbitrator. Furthermore, it has also been provided that an Arbitrator s previous involvement in the case/subject matter would also be a valid ground giving rise to justifiable doubts as to the independence or impartiality of an Arbitrator. VIII That in the present case, as brought out above, the alleged Arbitrator so appointed by the respondent herein is an employee of the respondent herein itself. In fact, the allegedly appointed individual is the Chief Executive Officer (CEO) of the respondent herein, who on account of such position also has a control ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rks similar to the one involved in the present case and it could not be disputed that the decisions of part cancellation were taken at the highest level of the Appellant. In the circumstances, the High Court found that the apprehension entertained by the Respondent was reasonable and not a vague or general objection. The observations of the High Court were:- 13. The Arbitrator, though the CEO of the respondent-Company and the Project In-charge of the Indira Gandhi Super Thermal Power Project, P.O. Jharii, Distt. Jhajjar, Haryana, was not the Engineer In-charge or the day-to-day In-charge of the work, which was to be performed by the petitioner under the contract in question. In fact, the Engineer In-charge for this project is AGM (CCD-Township) who is supported by Group of Engineers (Dy. Managers, Managers Sr. Managers) working under him for execution of the work. Further, the AGM (CCD-Township) reports to AGM (ME/CCD) who in turn reports to CEO (APCPL). 37. It is common parlance oft-quoted aphorism Not only must Justice be done; it must also be seen to be done. The reason is that rules are moral constructs that are meant to serve higher value. The amendment of 2015 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the High Court and both the petitions ought not to have been entertained. 13. To the extent the High Court had directed the Appellant to submit three names from its panel of Arbitrators from which list the Respondent was to select the sole Arbitrator, the Respondent challenged that part of the Judgment by filing SLP (Civil) Nos.503-504 of 2017. Appearing for the Respondent, Mr. Manoj K. Singh, learned Advocate relied upon some decisions of this Court and submitted that an Officer who had either dealt with the project or was directly subordinate to the Authority whose decision was the subject matter of dispute could not be an arbitrator in the matter. 14. At the outset, it must be stated that the invocation of arbitration in the present case was on 29.07.2015, the Arbitrator was appointed on 19.08.2015 and the parties appeared before the Arbitrator on 07.10.2015, well before 23.10.2015 i.e. the date on which the Amendment Act was deemed to have come into force. The statutory provisions that would therefore govern the present controversy are those that were in force before the Amendment Act came into effect. We must mention here that both the parties have addressed their subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lenged is entitled to any fees. 14. Failure or impossibility to act- (1) The mandate of an arbitrator shall terminate if- (a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and (b) he withdraws from his office or the parties agree to the termination of his mandate. (2) If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate. (3) If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or sub-section (3) of section 12. 16. In the present case Clause 56 of the GCC provides for arbitration by the Project In-charge of the concerned Project, and in case such Project In-charge were to be unable or unwilling to act, arbitration by any person appointed by the Chairman and Managing Director. It further provides inter alia that there would be n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employee of one of the parties to the arbitration agreement. 18. In the same decision, this Court in paragraphs 34 and 35 dealt with justifiable apprehension about the independence or impartiality of an employee arbitrator in following terms:- 34. The fact that the named arbitrator is an employee of one of the parties is not ipso facto a ground to raise a presumption of bias or partiality or lack of independence on his part. There can however be a justifiable apprehension about the independence or impartiality of an employee arbitrator, if such person was the controlling or dealing authority in regard to the subject contract or if he is a direct subordinate (as contrasted from an officer of an inferior rank in some other Department) to the officer whose decision is the subject-matter of the dispute. 35. Where however the named arbitrator though a senior officer of the Government/statutory body/government company, had nothing to do with the execution of the subject contract, there can be no justification for anyone doubting his independence or impartiality, in the absence of any specific evidence. Therefore, senior officer(s) (usually Heads of Department or equivalent) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the contract works in question but that by itself does not render the appointment invalid. Since there is nothing on record which could raise justifiable doubts about the independence or impartiality of the named Arbitrator, in the light of the observations of this Court in Indian Oil Corporation Ltd. ( supra) the appointment of the Arbitrator could not in any way be termed to be illegal or unenforceable. 20. However, number of decisions of this Court were relied upon by the Respondent in support of its submission that interference in the present case was called for. We may therefore deal with those decisions. A. In Northern Railway Administration, Ministry of Railway, New Delhi v. Patel Engineering Company Ltd (2008) 10 SCC 240., a Bench consisting of three learned Judges of this Court was called upon to consider the apparent conflict between two Judgments of this Court in ACE Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corpn. Ltd. (2007) 5 SCC 304 and Union of India v. Bharat Battery Manufacturing Co. (P) Ltd. (2007) 7 SCC 684 . The submission made on behalf of the appellant therein as quoted in paragraph 5 was:- 5. ..It is, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Former Judge of that High Court as the sole arbitrator. Paragraph 11 of the decision set out the question which arose for consideration and Paragraph 14 was as under:- 14. It was further held in Northern Railway case that the Chief Justice or his designate should first ensure that the remedies provided under the arbitration agreement are exhausted, but at the same time also ensure that the twin requirements of sub-section (8) of Section 11 of the Act are kept in view. This would mean that invariably the court should first appoint the arbitrators in the manner provided for in the arbitration agreement. But where the independence and impartiality of the arbitrator(s) appointed/nominated in terms of the arbitration agreement is in doubt, or where the Arbitral Tribunal appointed in the manner provided in the arbitration agreement has not functioned and it becomes necessary to make fresh appointment, the Chief Justice or his designate is not powerless to make appropriate alternative arrangements to give effect to the provision for arbitration. C. After dealing with cases on the point including Northern Railway Administration (supra), this Court in Indian Oil Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r his designate will exercise power under sub-section (6) of Section 11, if a party fails to act as required under the agreed procedure (or the parties or the two appointed arbitrators fail to reach an agreement expected of them under the agreed procedure or any person/institution fails to perform any function entrusted to him/it under that procedure). ( iv ) While failure of the other party to act within 30 days will furnish a cause of action to the party seeking arbitration to approach the Chief Justice or his designate in cases falling under sub-sections (4) and (5), such a time-bound requirement is not found in sub-section (6) of Section 11. The failure to act as per the agreed procedure within the time-limit prescribed by the arbitration agreement, or in the absence of any prescribed time-limit, within a reasonable time, will enable the aggrieved party to file a petition under Section 11(6) of the Act. ( v ) Where the appointment procedure has been agreed between the parties, but the cause of action for invoking the jurisdiction of the Chief Justice or his designate under clauses ( a ), ( b ) or ( c ) of sub-section (6) has not arisen, then the question of the Chief Just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 329. It was held in that case that: 3 . It is settled law that court cannot interpose and interdict the appointment of an arbitrator, whom the parties have chosen under the terms of the contract unless legal misconduct of the arbitrator, fraud, disqualification, etc. is pleaded and proved. It is not in the power of the party at his own will or pleasure to revoke the authority of the arbitrator appointed with his consent. There must be just and sufficient cause for revocation. The said principle has to abide in the normal course. E. Similarly, in Denel (Proprietary) Limited v . Ministry of Defence (2012) 2 SCC 759 , the relevant clause provided for sole arbitration of the Director General, Ordnance Factory, Government of India or a Government Servant appointed by him. It was observed that since no arbitrator was appointed in terms of the governing clause within the stipulated period the respondent had forfeited the right to make an appointment of an arbitrator. Paragraphs 21 and 24 of the decision were:- 21. It is true that in normal circumstances while exercising jurisdiction under Section 11(6), the Court would adhere to the terms of the agreement as c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given by granting three months to them. Virtually a peremptory order was passed by the High Court, but the Arbitral Tribunal remained unaffected and took the directions of the High Court in a cavalier manner. Therefore, the order of the High Court terminating the mandate of the Arbitral Tribunal is flawless. This aspect of the impugned order is not even questioned by the appellant at the time of hearing of the present appeal. However, the contention of the appellant is that even if it was so, as per the provisions of Section 15 of the Act, substitute arbitrators should have been appointed according to the rules that were applicable to the appointment of the arbitrator being replaced . On this basis, it was the submission of Mr. Mehta, learned ASG, that the High Court should have resorted to the provision contained in Clause 64 of GCC. 13. No doubt, ordinarily that would be the position. The moot question, however, is as to whether such a course of action has to be necessarily adopted by the High Court in all cases, while dealing with an application under Section 11 of the Act or is there room for play in the joints and the High Court is not divested of exercising discretion un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extracted above, the appointment of an arbitrator would be beyond pale of the arbitration agreement, empowering the court to appoint such arbitrator(s) as may be permissible. That would be the effect of non obstante clause contained in sub-section (5) of Section 12 and the other party cannot insist on appointment of the arbitrator in terms of the arbitration agreement. 21. Except the decision of this Court in Voestalpine Schienen GMBH (supra) referred to above, all other decisions arose out of matters where invocation of arbitration was before the Amendment Act came into force. Voestalpine Schienen GMBH (supra) was a case where the invocation was on 14.6.2016 i.e. after the Amendment Act and the observations in Para 18 clearly show that since the arbitration clause finds foul with the amended provisions , the Court was empowered to appoint such arbitrator(s) as may be permissible. The ineligibility of the arbitrator was found in the context of amended Section 12 read with Seventh Schedule (which was brought in by Amendment Act) in a matter where invocation for arbitration was after the Amendment Act had come into force. It is thus clear that in pre-amendment cases, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. B. In cases governed by 1996 Act after the Amendment Act has come into force:- If the arbitration clause finds foul with the amended provisions, the appointment of the Arbitrator even if apparently in conformity with the arbitration clause in the agreement, would be illegal and thus the Court would be within its powers to appoint such arbitrator(s) as may be permissible. 23. The observations of the High Court in paragraphs 37-38 as quoted above show that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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