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TMI Blog2020 (2) TMIX X X X Extracts X X X X X X X X Extracts X X X X ..... introduced by the Amending Act 3 of 2016 to Section 12 is the introduction of sub section 5. Sub section 5 opens with a non obstante clause which stipulates that although parties have entered into an agreement giving right to one party to appoint an Arbitrator, even in such cases, the relationship of the Arbitrator with any of the parties or counsel or subject matter of the dispute comes within the VII Schedule, he becomes ineligible for being appointed as a Arbitrator. Unlike Section 12 Sub section 1 (a), Sub section 5 is a clear bar. However the proviso to this sub section makes an exception. In the case on hand the clauses of the General Conditions of the Contract continue to remain the same and has not been modified as per the amended Section 12 (5) of the 1996 Act. Therefore, the Judgement in TRF LTD v. Energo Engg. Projects Ltd. [ 2017 (7) TMI 1288 - SUPREME COURT ] and Perkins Eastman Architects DPC v. HSCC (India) Ltd. [ 2019 (11) TMI 1154 - SUPREME COURT ] would apply to the instant case. Therefore, the Chief Engineer who had appointed the arbitrator was clearly ineligible to nominate the arbitrator. Thus, it is amply clear that neutrality of the Arbitrator is the touchsto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em towards price escalation. The petitioner was awarded the contract for the construction of the control room for Traction Sub-Station including earth filling and retaining wall in the Kumbla-Uppala in Palghat Division of Southern Railway. Although the work was supposed to have been completed within a period of 15 months, the same had been delayed and nearly 5 extensions had been granted. The petitioner would contend that these delays were on account of certain procedural delays on the part of the respondent. For 4 of the extensions, the respondent had granted the extension with PVC by entering into Rider Agreements. However with regard to the disputed claim, the respondent did not allow the escalation and therefore left with no other alternative the claimant had to invoke the Arbitral proceedings. The petitioner had himself represented the case before the Arbitral Tribunal. O.P. No. 447 of 2019: 3. The claimant who is the petitioner before this Court had invoked the Arbitration clause under the agreement entered into between them and the respondent for recovery of amounts which the petitioner claims is due to them under the price escalation. The petitioner was awarded the construc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the work was supposed to have been completed within a period of 15 months, the same had been delayed and nearly 5 extension had been granted. The petitioner would contend that these delays were on account of certain procedural delays on the part of the respondent. For 4 of the extensions, the respondent had granted the extension with PVC by entering into Rider Agreements. However with regard to the disputed claim, the respondent did not allow the escalation and therefore left with no other alternative the claimant had to invoke the Arbitral proceedings. The petitioner had himself represented the case before the Arbitral Tribunal. 6. The respondent had defended the above claims by inter alia contending that with reference to the earlier extensions, the respondent had provided the price variation calculation but however with reference to the claims subject matter of the arbitral proceedings, such a calculation was not given. Further the respondent had also raised a plea that the claimant had rushed into filing the claim without permitting the respondent to negotiate for the price escalation with their finance department. As per the agreement entered into between the petitioner and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . TRF LTD v. Energo Engg. Projects Ltd. (2017) 6 MLJ 81 : LNIND 2017 SC 296 : (2017) 8 SCC 377 : AIR 2017 SC 3889 4. Perkins Eastman Architects DPC v. HSCC (India) Ltd. (2019) 8 MLJ 623 : LNIND 2019 SC 936 : AIR 2020 SC 59 8. Per contra Mr. P.T. Ramkumar, learned counsel appearing on behalf of the respondent railways would contend that the petitioner cannot raise the plea of neutrality of the Arbitrator, at this stage of the challenge to the award of the Arbitral Tribunal since he has not taken steps to file an application under Section 13 (2) as contemplated under the 1996 Act. He would submit that on the contrary the petitioner had accepted the constitution of the Arbitral Tribunal and had proceeded to participate in the proceedings. On the merits, he would argue that the petitioner had been paid much more than the accepted value in each of the contract and therefore the demand was wrong. He would further contend that the earlier extension was granted with PVC since the delay was on their account. In the claim on hand the PVC bills were not submitted by the petitioner and without doing so the petitioner had rushed to invoke the Arbitral clause. 9. The learned counsel for the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months. Explanation 1.-The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. Explanation 2.-The disclosure shall be made by such person in the form specified in the Sixth Schedule.] 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. 2 [(5) Notwithstanding any prior agreement to the contrary, any person whose r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The Judgment of the Honorable Supreme Court post the amendment in Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Limited (supra) was a case where an arbitration agreement had contained. a clause which prescribed the procedure for the constitution of the Arbitral Tribunal. The matter related to the agreement which the applicant had with the Delhi Metro Rail Corporation Limited (DMRC). As per the said arbitration clause since the claimant therein had requested the dispute to be referred to Arbitration, names of five persons were forwarded to the party requesting the reference from out of the panel which was maintained by the respondent and out of this the petitioner had to choose one Arbitrator. In the said case since the request was post the amendment, the claimant therein had refused to accept the Arbitral Tribunal nominated by the respondent. The claimant therein approached the Court for appointing a sole Arbitrator under Section 11 (6) read with Section 11 (8) of the 1996 Act. While considering the arguments, the Hon'ble Supreme Court had observed that the very purport of the introduction of Section 12 (5) to the Arbitration Act was the reiterate the twin featur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, the particular interest of either parties. After all, the arbitrator has adjudicatory role to perform and, therefore, he must be independent of parties as well as impartial. The United Kingdom Supreme Court has beautifully highlighted this aspect in Hashwani v. Jivraj Hashwani v. Jivraj, 2011 1 WLR 1872 in the following words: (WLR p. 1889, para 45) 45. ... the dominant purpose of appointing an arbitrator or arbitrators is the impartial resolution of the dispute between the parties in accordance with the terms of the agreement and, although the contract between the parties and the arbitrators would be a contract for the provision of personal services, they were not personal services under the direction of the parties. They finally held that the amended provisions places an embargo on a person who is an employee of the party to the dispute to act as an Arbitrator. They have held so in paragraph 24 which is extracted herein below: 24. Keeping in view the aforesaid parameters, we advert to the facts of this case. Various contingencies mentioned in the Seventh Schedule render a person ineligible to act as an arbitrator. Entry 1 is highlighted by the learned counsel for the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, and second, a plea that pertains to statutory disqualification of the nominated arbitrator can be raised before the court in application preferred. under Section 11(6) of the Act, for such an application is not incompetent. For the sake of clarity, convenience and apposite appreciation, we shall state the facts from Civil Appeal No. 5306 of 2017. 17. The learned Judges went further ahead and held that if the person nominating the Arbitrator himself is ineligible on account of him being an employee of the party in dispute then the Arbitrator appointed by him squarely came within the mischief of Schedule VII (1) of the 1996 Act. 18. The learned Judges in paragraph 12 had also discussed the question of ineligibility of an Arbitrator and the existence of a justifiable doubt as follows: 12. After the 2016 Amendment Act, a dichotomy is made by the Act between persons who become ineligible to be appointed as arbitrators, and persons about whom justifiable doubts exist as to their independence or impartiality. Since ineligibility goes to the root of the appointment, Section 12(5) read with the Seventh Schedule makes it clear that if the arbitrator falls in any one of the categories spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law to act as an arbitrator, he could not nominate another person to act as an arbitrator and that once the identity of the Managing Director as the sole arbitrator was lost, the power to nominate someone else as an arbitrator was also obliterated. The relevant Clause in said case had nominated the Managing Director himself to be the sole arbitrator and also. empowered said Managing Director to nominate another person to act Arbitration Application No. 32 of 2019 Perkins Eastman Architects DPC and Another v. HSCC (India) Ltd. as an arbitrator. The Managing Director thus had two capacities under said Clause, the first as an arbitrator and the second as an appointing authority. In the present case we are concerned with only one capacity of the Chairman and Managing Director and that is as an appointing authority. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgo Engg. Projects Ltd. (supra) and Perkins Eastman Architects DPC v. HSCC (India) Ltd., had observed that the decision in TRF LTD v. Energo Engg. Projects Ltd. (supra) was not applicable to the case before them. This view stems from the fact that the GCC rules of the Railways had undergone modification in the light of Section 12 (5) being inserted to the 1996 Act. The Bench went on to hold that the power of the General Manager to nominate the arbitrator was counter balanced by the power of the respondent to select their nominees in view of the modified clauses, namely, 64 (3) (a) (ii) and 64 (3) (b) of the GCC which also contemplates a waiver of the applicability of Section 12 (5) with the execution of Annexure XII to the conditions. The learned Judges went on to hold that the General Manager had not become ineligible to appoint the arbitrator. Ultimately, the Bench directed the appellant therein to send a fresh panel of four retired Officers in keeping with clause 64 (3) (b) of the General Conditions of Contract. They therefore differed from the view taken in TRF LTD v. Energo Engg. Projects Ltd. (supra) and Perkins Eastman Architects DPC v. HSCC (India) Ltd. However, in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to independence or impartiality have to be determined as a matter of fact in the facts of the particular challenge by the Arbitral Tribunal under Section 13. If a challenge is not successful, and the Arbitral Tribunal decides that there are no justifiable doubts as to the independence or impartiality of the arbitrator/arbitrators, the Tribunal must then continue the arbitral proceedings under Section 13(4) and make an award. It is only after such award is made, that the party challenging the arbitrator's appointment on grounds contained in the Fifth Schedule may make an application for setting aside the arbitral award in accordance with Section 34 on the aforesaid grounds. It is clear, therefore, that any challenge contained in the Fifth Schedule against the appointment of Justice Doabia and Justice Lahoti cannot be gone into at this stage, but will be gone into only after the Arbitral Tribunal has given an award. Therefore, we express no opinion on items contained in the Fifth Schedule under which the appellant may challenge the appointment of either arbitrator. They will be free to do so only after an award is rendered by the Tribunal. The learned Judges have drawn a dist ..... X X X X Extracts X X X X X X X X Extracts X X X X
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