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TMI Blog2017 (7) TMI 1288X X X X Extracts X X X X X X X X Extracts X X X X ..... been conferred with the power to nominate one who can be the arbitrator in his place. Thus, there is subtle distinction. Once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator. The arbitrator becomes ineligible as per prescription contained in Section 12(5) of the Act. It is inconceivable in law that person who is statutorily ineligible can nominate a person. Needless to say, once the infrastructure collapses, the superstructure is bound to collapse. One cannot have a building without the plinth. Or to put it differently, once the identity of the Managing Director as the sole arbitrator is lost, the power to nominate someone else as an arbitrator is obliterated. The orders passed by the learned Single Judge are set aside and the matters are remitted to the High Court for fresh consideration - Appeal allowed. - CIVIL APPEAL NO. 5306 OF 2017 (@ S.L.P. (C) NO. 22912 OF 2016), CIVIL APPEAL NO. 5307, 5308, 5311, 5309 OF 2017 (@ S.L.P. (C) No. 23324, 23348, 14331, 14226 of 2016) - - - Dated:- 3-7-2017 - Justice Dipak Misra, Justice A.M. Khanwilkar And Justice Mohan M. Shantanagoudar JUDGMENT Dipak Misra, J. In thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n arbitrator. It was also asserted before the High Court that the appellant had objected to the procedure for appointment of arbitrator provided under the purchase order and accordingly communicated that an arbitrator be appointed de hors the specific terms of the purchase order. There was denial of the same by the respondent on the ground that it was contrary to the binding contractual terms and accordingly it rejected the suggestion given by the appellant and eventually by letter dated 27.1.2016 nominated an arbitrator, a former Judge of this Court, as the sole arbitrator in terms of Clause 33(d) of the purchase order. It is apt to note here that in certain cases, a former Chief Justice of a High Court was also appointed as arbitrator by the Managing Director. 5. After the appointment was made, the appellant preferred an application under Section 11(5) read with Section 11(6) of the Act for appointment of an arbitrator under Section 11(2) of the Act. The said foundation was structured on the basis that under Section 12(5) of the Arbitration and Conciliation (Amendment) Act, 2015 (3 of 2016) read with the Fifth and the Seventh Schedules to the amended Act, the Managing Director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alous situation which is not countenanced in law. (ii) Once the owner/employer has been declared disqualified in law, a nominee by the owner to arbitrate upon is legally unacceptable. In support of this proposition, reliance has been placed upon Chairman, Indore Vikas Pradhikaran v. Pure Industrial Coke Chemicals Ltd. others (2007) 8 SCC 705. (iii) The principle embedded in the maxim Qui Facit Per Alium Facit Per Se (What one does through another is 1 done by oneself) is attracted in the instant case. Additionally, if such liberty is granted, it will usher in the concept that an action that cannot be done or is outside the prohibited area can be done illegally by taking means to the appointment of a nominee. In this regard, the decision in Firm of Pratapchand Nopaji v. Firm of Kotrike Venkata Setty Sons and others (1975) 2 SCC 208 has been commended. (iv) The status of the nominee does not take away the prohibition of ineligibility of nomination as the nominator has become ineligible to arbitrate upon. A legal issue of this nature which goes to the very root of the appointment of the arbitrator pertaining to his appointment which is ex facie invalid, cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e always has the right to nominate an independent and neutral arbitrator. (e) The language of the purchase order does not stipulate that the Managing Director of the respondent will have the right to nominate a sole arbitrator as long as he is also qualified to act as an arbitrator. The role to act as an arbitrator and to nominate an arbitrator are in two independent spheres and hence, the authority to nominate is not curtailed. (f) Challenge to an appointment of arbitrator under Section 13 of the Act can only be made before the Arbitral Tribunal, for despite introducing the Fifth, the Sixth and the Seventh Schedules to the amended Act under Section 12, the Legislature has consciously retained the challenge procedure under Section 13 of the Act. It is because Sections 13(2) and Section 13(3) of the Act clearly postulate that a challenge to the authority of arbitrator has to be made before the arbitral tribunal and the said procedure cannot be bypassed by ventilating the objection under Section 11 of the Act. Any objection to be raised under the Fifth Schedule or the Seventh Schedule of the amended Act has to be raised before the arbitral tribunal. To bolster the said subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 12 read as follows: 12. Grounds for challenge.- (1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality. (2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him. (3) An arbitrator may be challenged only if- (a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or (b) he does not possess the qualifications agreed to by the parties. (4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made. 10. Section 13 of the Act dealt with challenge procedure. After the amendment, Section 12 that deals with the grounds of challenge is as follows: 12. Grounds for challenge.- (1) When a person is approached in connection with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosed. We think it appropriate to reproduce the same: CIRCUMSTANCES DISCLOSING ANY PAST OR PRESENT RELATIONSHIP WITH OR INTEREST IN ANY OF THE PARTIES OR IN RELATION TO THE SUBJECT-MATTER IN DISPUTE, WHETHER FINANCIAL, BUSINESS, PROFESSIONAL OR OTHER KIND, WHICH IS LIKELY TO GIVE RISE TO JUSTIFIABLE DOUBTS AS TO YOUR INDEPENDENCE OR IMPARTIALITY (LIST OUT): CIRCUMSTANCES WHICH ARE LIKELY TO AFFECT YOUR ABILITY TO DEVOTE SUFFICIENT TIME TO THE ARBITRATION AND IN PARTICULAR YOUR ABILITY TO FINISH THE ENTIRE ARBITRATION WITHIN TWELVE MONTHS (LIST OUT) 12. Sub-section (5) of Section 12, on which immense stress has been laid by the learned counsel for the appellant, as has been reproduced above, commences with a non-obstante clause. It categorically lays down that if a person whose relationship with the parties or the counsel or the subject matter of dispute falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator. There is a qualifier which indicates that parties may, subsequent to the disputes arisen between them, waive the applicability by express agreement in writing. The qualifier finds place in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity has been statutorily disqualified. The submission of the respondent, per contra, is that the Managing Director may be disqualified to act as an arbitrator, but he is not deprived of his right to nominate an arbitrator who has no relationship with the respondent. Additionally, it is assiduously urged that if the appointment is hit by the Fifth Schedule or the Sixth Schedule or the Seventh Schedule, the same has to be raised before the arbitral tribunal during the arbitration proceeding but not in an application under Section 11(6) of the Act. 17. First we shall address the issue whether the Court can enter into the arena of controversy at this stage. It is not in dispute that the Managing Director, by virtue of the amended provision that has introduced sub-section (5) to Section 12, had enumerated the disqualification in the Seventh Schedule. It has to be clarified here that the agreement had been entered into before the amendment came into force. The procedure for appointment was, thus, agreed upon. It has been observed by the designated Judge that the amending provision does not take away the right of a party to nominate a sole arbitrator, otherwise the legislature could h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been exercised within a reasonable time. It was further contended that unilateral appointment of arbitrator was not envisaged under the lease agreement and, therefore, the first respondent should have obtained the consent of the appellant and the name of the arbitrator should have been proposed to the appellant before the appointment. The Court took note of the fact that the arbitration clause in the lease agreement contemplated appointment of a sole arbitrator. The Court further took note of the fact that the appellant therein had not issued any notice to the first respondent seeking appointment of an arbitrator and it explicated that an application under Section 11(6) of the Act can be filed when there is a failure of the procedure for appointment of arbitrator. Elaborating the said concept, the Court held: 6. ... This failure of procedure can arise under different circumstances. It can be a case where a party who is bound to appoint an arbitrator refuses to appoint the arbitrator or where two appointed arbitrators fail to appoint the third arbitrator. If the appointment of an arbitrator or any function connected with such appointment is entrusted to any person or instit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys from the date of demand. In our view, the appointment of the arbitrator by the respondent is valid and it cannot be said that the right was forfeited after expiry of 30 days from the date of demand. 21. We need not decide whether for purposes of sub-sections (4) and (5) of Section 11, which expressly prescribe 30 days, the period of 30 days is mandatory or not. And again: 23. When parties have entered into a contract and settled on a procedure, due importance has to be given to such procedure. Even though rigor of the doctrine of freedom of contract has been whittled down by various labour and social welfare legislation, still the court has to respect the terms of the contract entered into by parties and endeavour to give importance and effect to it. When the party has not disputed the arbitration clause, normally he is bound by it and obliged to comply with the procedure laid down under the said clause . 22. On the aforesaid basis, the Court opined that the first respondent did not fail to follow the procedure contemplated under the agreement in appointing the arbitrator nor did it contravene the provisions of the arbitration clause. The said conclusion was arri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion clause between the parties that the disputes between them shall be referred to the sole arbitration of the ED (NR) of the Corporation and, if ED (NR) was unable or unwilling to act as the sole arbitrator, the matter shall be referred to the person designated by such ED (NR) in his place who was willing to act as sole arbitrator and, if none of them is able to act as an arbitrator, no other person should act as arbitrator, the appointment of Director (Marketing) or his nominee as a sole arbitrator by the Corporation cannot be sustained. If the office of ED (NR) ceased to exist in the Corporation and the parties were unable to reach to any agreed solution, the arbitration clause did not survive and has to be treated as having worked its course. According to the arbitration clause, sole arbitrator would be ED (NR) or his nominee and no one else. In the circumstances, it was not open to either of the parties to unilaterally appoint any arbitrator for resolution of the disputes. Sections 11(6)(c), 13 and 15 of the 1996 Act have no application in the light of the reasons indicated above. 8. In this view of the matter, the impugned order dated 8-11-2006 has to be set aside and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany (supra) and opined that as the Corporation had failed to act as required under the procedure agreed upon and did not make the appointment until the application was made under Section 11(6) of the Act, it had forfeited its right of appointment of an arbitrator. In such a circumstance the Chief Justice or his designate ought to have exercised his jurisdiction to appoint an arbitrator under Section 11(6) of the Act. Be it noted, the three-Judge Bench also expressly stated its full agreement with the legal position that has been laid down in Datar Switchgears Ltd. (supra) 27. In Deep Trading Company (supra), the three-Judge Bench noticed as the Corporation did not agree to any of the names proposed by the appellant, and accordingly remitted the matter to the High Court for an appropriate order on the application made under Section 11(6) of the Act. 28. At this stage, it is necessary to understand the distinction between the two authorities, namely, Newton Engineering (supra) and Deep Trading Company (supra). In Newton Engineering (supra) the arbitration clause provided that no person other than ED (NR) or a person designated by the ED (NR) should act as an arbitrator. Thou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the contractor, no reference order shall be maintainable unless the contractor furnishes a security deposit of a sum determined as per the table given therein. The said condition precedent was not satisfied by the contractor. Appreciating the obtaining factual score, the Court held that it has to be kept in mind that it is always the duty of the Court to construe the arbitration agreement in a manner so as to uphold the same, and, therefore, the High Court was not correct in appointing an arbitrator in a manner, which was inconsistent with the arbitration agreement. Thus, emphasis was laid on the manner of appointment which is consistent with arbitration clause that prescribes for appointment. 31. The purpose of referring to the aforesaid judgments is that courts in certain circumstances have exercised the jurisdiction to nullify the appointments made by the authorities as there has been failure of procedure or ex facie contravention of the inherent facet of the arbitration clause. Submission of the learned counsel for the respondent is that the authority of the arbitrator can be raised before the learned Arbitrator and for the said purpose, as stated hereinbefore, he has pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 1996 Act. Where the parties had agreed that the procedure for the arbitration would be governed by the ICC Rules, the same would necessarily include the appointment of an arbitral tribunal in terms of the arbitration agreement and the said Rules. Arbitration Petition no. 20 of 2011 under Section 11(6) of the 1996 Act for the appointment of an arbitrator must, therefore, fail and is rejected, but this will not prevent the petitioner from taking recourse to other provisions of the aforesaid Act for appropriate relief. 33. The said pronouncement, as we find, is factually distinguishable and it cannot be said in absolute terms that the proceeding once initiated could not be interfered with the proceeding under Section 11 of the Act. As we find, the said case pertained to ICC Rules and, in any case, we are disposed to observe that the said case rests upon its own facts. 34. Mr. Sundaram, learned senior counsel for the appellant has also drawn inspiration from the judgment passed by the designated Judge of this Court in Walter Bau AG (supra), where the learned Judge, after referring to Antrix Corporation Limited (supra), distinguished the same and also distinguished the aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction to decide questions forming the subject matter of an arbitration if the same had been the subject matter of a suit, then obviously such application would be outside the four corners of Section 42. If, for example, an application were to be filed in a court inferior to a Principal Civil Court, or to a High Court which has no original jurisdiction, or if an application were to be made to a court which has no subject-matter jurisdiction, such application would be outside Section 42 and would not debar subsequent applications from being filed in a court other than such court. 38. The Court summed up the conclusions as follows: 25.(a) Section 2(1)(e) contains an exhaustive definition marking out only the Principal Civil Court of Original Jurisdiction in a district or a High Court having original civil jurisdiction in the State, and no other court as court for the purpose of Part I of the Arbitration Act, 1996. (b) The expression with respect to an arbitration agreement makes it clear that Section 42 will apply to all applications made whether before or during arbitral proceedings or after an award is pronounced under Part I of the 1996 Act. (c) Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the context of Sections 42, 34, 9 and 2(1)(e) of the Act. In the present case, we are exclusively concerned with the statutory disqualification of the learned arbitrator. The principles laid down in Associated Contractors (supra) has no applicability to the case at hand and reliance placed upon the same, we are obliged to say, is nothing but a sisyphean endeavour. 41. As we are required to adjudge on the jurisdiction of the Designated Judge, we may reproduce the relevant conclusion from the majority judgment in SBP Co. (supra). Conclusion (iv), as has been summed up in para 47 in SBP s case by the majority, reads as follow: 47. (iv) The Chief Justice or the Designated Judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be his own jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators. The Chief Justice or the Designated Judge would be entitled to seek the opinion of an institution in the matter of nominating an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r institution designated by such Court, before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of section 12, and have due regard to- (a) any qualifications required of the arbitrator by the agreement of the parties; and (b) the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator. 45. We are referring to the same as learned counsel for the parties have argued at length with regard to the disclosure made by the arbitrator and that has also been referred to by the designated Judge. In this context, we may profitably refer to sub-section (6A) of Section 11 of the Act which reads as follows: (6A). The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement. 46. The purpose of referring to the said provision is that the amended law requires the Court to confine the examination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court appointed a retired Judge. Taking exception to the view of the High Court, the two-Judge Bench held, as stated earlier, that the arbitration clause postulated sole arbitrator would be ED (NR) or his nominee and no one else and, therefore, Section 11(6C) was not applicable. The Court ruled that as the parties had not been able to reach the agreed decision, the arbitration clause did not survive. 49. In Deep Trading Company (supra) while approving the view expressed in Newton Engineering (supra), the Court observed that in the said case the Court was not concerned with the question of forfeiture of the right of the Corporation for appointment of an arbitrator and accordingly while setting aside the order sent for fresh consideration by the Chief Justice or the Designated Judge. 50. The aforesaid three cases exposit three different situations. The first one relates to non-failure of the procedure and the authority of the owner to appoint the arbitrator; the second relates to non-survival of the arbitration clause; and the third pertains to forfeiture of the right of the Corporation to appoint the sole arbitrator because of the failure to act with the procedure agreed u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause requiring the parties to nominate their respective arbitrator, their authority to nominate cannot be questioned. What really in that circumstance can be called in question is the procedural compliance and the eligibility of their arbitrator depending upon the norms provided under the Act and the Schedules appended thereto. But, here is a case where the Managing Director is the named sole arbitrator and he has also been conferred with the power to nominate one who can be the arbitrator in his place. Thus, there is subtle distinction. In this regard, our attention has been drawn to a two-Judge Bench decision in State of Orissa and others v. Commissioner of Land Records Settlement, Cuttack and others20. In the said case, the question arose can the Board of Revenue revise the order passed by its delegate. Dwelling upon the said proposition, the Court held: 25. We have to note that the Commissioner when he exercises power of the Board delegated to him under Section 33 of the Settlement Act, 1958, the order passed by him is to be treated as an order of the Board of Revenue and not as that of the Commissioner in his capacity as Commissioner. This position is clear from tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r by an ineligible arbitrator is allowed, it would tantamount to carrying on the proceeding of arbitration by himself. According to learned counsel for the appellant, ineligibility strikes at the root of his power to arbitrate or get it arbitrated upon by a nominee. 57. In such a context, the fulcrum of the controversy would be, can an ineligible arbitrator, like the Managing Director, nominate an arbitrator, who may be otherwise eligible and a respectable person. As stated earlier, we are neither concerned with the objectivity nor the individual respectability. We are only concerned with the authority or the power of the Managing Director. By our analysis, we are obligated to arrive at the conclusion that once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator. The arbitrator becomes ineligible as per prescription contained in Section 12(5) of the Act. It is inconceivable in law that person who is statutorily ineligible can nominate a person. Needless to say, once the infrastructure collapses, the superstructure is bound to collapse. One cannot have a building without the plinth. Or to put it differently, once the identity of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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