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TMI Blog2022 (11) TMIX X X X Extracts X X X X X X X X Extracts X X X X ..... 9 (11) TMI 1154 - SUPREME COURT] has clearly laid down that a person having an interest in the dispute or in the outcome thereof, is ineligible not only to act as an Arbitrator, but, is also rendered ineligible to appoint anyone else as an Arbitrator. In the present case, as noted above, the arbitration clause gave power and authority to the respondent-Bank to unilaterally appoint the Arbitrator. As a matter of fact, in the present case, the learned Arbitrator was appointed unilaterally by the respondent-Bank, which was clearly in the teeth of the position of law clarified by the Supreme Court in the context of Section 12(5) of the said Act, read with Seventh Schedule thereof. Nonetheless, this Court has perused the material placed on record. There is substance in the contentions raised on behalf of the petitioners that the procedure adopted by the learned Arbitrator in the present case did not adhere to the principles of natural justice. There is no dispute about the fact that the learned Arbitrator failed to frame issues in order to afford an opportunity to the parties to lead evidence. The minutes of the meeting dated 27/7/2019, upon which the respondent-Bank has placed reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013. The said Award was made subject matter of challenge at the behest of the petitioners, by filing Arbitration Petition No. 427/2013, under Section 34 of the Arbitration and Conciliation Act, 1996. On 17/8/2015, the aforesaid petition was allowed by a learned Single Judge of this Court, accepting the contentions raised on behalf of the petitioners as regards violation of principles of natural justice on the part of the learned Arbitrator while passing Award dated 30/1/2013. 5. Thereafter, on 9/2/2018, the respondent-Bank again invoked the arbitration clause and unilaterally appointed an Arbitrator, in respect of disputes and differences that arose between the parties. On 9/3/2018, the learned sole Arbitrator gave his declaration as per Section 12(1)(b) of the aforesaid Act, specifically stating that he had held arbitrations for more than 500 financial institutions. In the said arbitration proceedings initiated on behalf of the respondent-Bank, the petitioners applied for grant of certified copies of documents, which according to the petitioners were not supplied. Thereafter, the petitioners raised a preliminary objection as regards the maintainability of the arbitration proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral proceedings. It was only in the Award that the learned Arbitrator referred to issues that were framed for consideration. It was submitted that the entire proceedings stood vitiated, thereby indicating that within the limited scope available under Section 34 of the aforesaid Act, this Court ought to interfere with the Award, in the facts and circumstances of the present case. On this basis, it was submitted that the impugned Award deserved to be set aside. 9. On the other hand, Ms. Chinmayee Ghag, learned counsel appearing for the respondent-Bank submitted that the ground pertaining to Section 12(5) of the aforesaid Act, was not specifically raised in the petition. It was submitted that in the absence of the ground being specifically raised on behalf of the petitioners, the same ought not to be considered by this Court. It was further submitted that the aforesaid ground of challenge was not available to the petitioners, firstly, because they never raised such an objection before the learned Arbitrator, indicating that they waived their right to raise such an objection. In support of the said contention, learned counsel for the respondent-Bank relied upon Section 4 of the aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n order to appreciate the said ground, it would be necessary to peruse the arbitration clause, which has been quoted above. As per aforesaid arbitration clause, it is only the respondent-Bank, which has authority to appoint a sole Arbitrator for resolving the disputes that may arise between the parties. 15. Section 12(5) of the aforesaid Act reads as follows: Section 12(5)-Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator; Provided that, parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing. 16. It is significant to note that the aforesaid provision was inserted by way of amendment with effect from 23/10/2015. The said provision starts with the words 'Notwithstanding any prior agreement to the contrary'. This indicates that even if any agreement prior to introduction of the aforesaid amendment provides for appointment of an Arbitrator that falls foul of Section 12(5) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid that merely because the petitioners participated in the arbitration proceedings, they were dis-entitled from raising the ground about the arbitration proceedings having been vitiated, due to unilateral appointment of the Arbitrator by the respondent-Bank. 20. The Supreme Court in the case of Perkins Eastman Architects DPC and Anr. Vs. HSCC (India) Limited (supra) considered the effect of Section 12(5) of the said Act, read with the Seventh Schedule. After referring to its earlier judgment in the case of TRF Ltd. Vs. Energo Engineering Projects Limited (2017) 8 SCC 377, the Supreme Court in paragraph Nos. 20 and 21 held thus- 20. We thus have two categories of cases. The first, similar to the one dealt with in TRF Limited where the Managing Director himself is named as an arbitrator with an additional power to appoint any other person as an arbitrator. In the second category, the Managing Director is not to act as an arbitrator himself but is empowered or authorised to appoint any other person of his choice or discretion as an arbitrator. If, in the first category of cases, the Managing Director was found incompetent, it was because of the interest that he would be said to be ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (Act 3 of 2016) and recognised by the decision of this Court in TRF Limited. 21. The Supreme Court has clearly laid down that a person having an interest in the dispute or in the outcome thereof, is ineligible not only to act as an Arbitrator, but, is also rendered ineligible to appoint anyone else as an Arbitrator. In the present case, as noted above, the arbitration clause gave power and authority to the respondent-Bank to unilaterally appoint the Arbitrator. As a matter of fact, in the present case, the learned Arbitrator was appointed unilaterally by the respondent-Bank, which was clearly in the teeth of the position of law clarified by the Supreme Court in the context of Section 12(5) of the said Act, read with Seventh Schedule thereof. 22. Therefore, it becomes evident that in the present case, from the very inception, i.e. from the stage of appointment of the Arbitrator, the proceedings were vitiated and the arbitral award was therefore, rendered unsustainable. This Court is inclined to allow the petition only on the aforesaid ground. 23. Nonetheless, this Court h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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