Delhi District Court
Bijender Singh Lather vs Intec Capital Limited on 6 May, 2023
IN THE COURT OF SHRI PANKAJ GUPTA:
DISTRICT JUDGE, (S/W) (COMMERCIAL COURT)-01,
DWARKA COURTS : DELHI.
OMP (COMM) NO. 01/19
CNR No. DLSW01-021202-2018
In the matter of :
1. Bijender Singh Lather
S/o Shri Prabhu Dayal
R/o Sector-3A, Sarai Aurangaband
Bahadurgarh, Haryana.
2. Ms. Bhavna Lather
D/o Shri Joginder Singh Lather,
R/o Sector-3A, Sarai Aurangaband
Bahadurgarh, Haryana.
3. Shri Chitresh Lather
S/o Shri Joginder Singh Lather,
R/o Sector-3A, Sarai Aurangaband
Bahadurgarh, Haryana.
4. Shri Joginder Singh Lather,
S/o Shri Prabhu Dayal,
R/o Sector-3A, Sarai Aurangaband
Bahadurgarh, Haryana.
...........PETITIONERS
Versus
Intec Capital Limited,
701-704, Manjusha Building
57, Nehru Place,
New Delhi-110019
............RESPONDENT
Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 1 of 54
OMP (COMM.) No.1/2019
Date of Institution : 03.01.2019
Date when the case reserved
for Judgment : 06.05.2023
Date of Judgment : 06.05.2023
JUDGMENT
1. This is the petition under section 34 of the Arbitration and Conciliation Act, 1996 (the Act) filed by the petitioners being aggrieved by the arbitration award dated 15.06.2018 (the impugned award) passed by Sh. Rajesh Rai (the Arbitrator).
2. Brief facts leading to filing of the present petition are the respondent filed the statement of claim before the arbitrator on the ground that the respondent was a Non Banking Financial Company and was engaged in the business of providing financial assistance to its client. Prabhu Shanti Real Estate Pvt. Ltd. (PSREPL) had approached the respondent to provide the financial assistance of Rs. 1,90,00,000/-. The petitioners herein stood as guarantors for the financial assistance to be provided to PSREPL. They also provided the collateral security by way of mortgage of the property bearing Khevat no.146, Min/119, Khata no. 185, Kila no. 27/3, Sarai Aurangabad, Bahadurgarh, Jhajjar, Haryana (the mortgaged property). The respondent agreed and sanctioned the loan of Rs. 1,90,00,000/- to PSREPL on 30.04.2015. PSREPL and the guarantors executed the requisite loan documents in Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 2 of 54 OMP (COMM.) No.1/2019 favour of the respondent. However, the petitioners and PSREPL failed to adhere to the financial discipline and defaulted in repayment of the loan amount despite several demands made by the respondent. Consequently, the dispute arose between the parties and the respondent invoked the arbitration clause no. 19 contained in the loan agreement dated 30.04.2015 vide its letter dated 10.05.2017. The arbitrator entered into reference and issued the notices to the respective parties calling upon them to join the arbitration proceeding. The petitioners and the respondent joined the arbitration proceeding. The respondent filed its statement of claim and the petitioners filed their written statement and contested the petition. The respondent led its evidence. However, the petitioners failed to cross-examine the respondent's witness despite given opportunities. The petitioners failed to lead their evidence despite given opportunities. After hearing the final arguments, the arbitrator made the impugned award. Being aggrieved by the same, the petitioners filed the present petition.
3. Notice of the petition was issued to the respondent and in response thereto, the respondent filed the written statement (WS) and prayed for its dismissal.
4. The arbitrator has filed the original arbitration record.
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5. I have heard counsel for the petitioners and counsel for the respondent and have perused the material available on record.
6. Admittedly, the petition is within period of limitation.
7. It is evident from the record that vide loan agreement dated 30.04.2015, the respondent granted loan to PSREPL and to secure the said loan, the petitioners mortgaged the mortgaged property and executed the requisite documents in favour of the respondent. The petitioners and PSREPL had defaulted in repayment of the loan amount. Consequently, the dispute arose between the parties and the respondent invoked the arbitration clause no. 19 contained in the loan agreement dated 30.04.2015 and appointed the arbitrator. The arbitrator entered the reference. Both the sides participated in the arbitration proceedings. Lastly, the arbitrator made the impugned award.
8. Counsel for the petitioners pleaded that the statement of claim was not signed, verified and instituted by the duly authorised person on behalf of the respondent. The respondent had not filed the original documents including book of account to prove the statement of account of PSREPL. As such, the arbitrator passed the impugned award without considering the original documents executed between the parties. The statement of account filed by the Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 4 of 54 OMP (COMM.) No.1/2019 respondent was ambiguous and incorrect, hence, the same could not be relied upon by the arbitrator. He also pleaded that the petitioners moved the application under order 18 Rule 17 of CPC dated 04.05.2018. However, the arbitrator did not consider the said application and made the impugned award.
9. Counsel for the petitioner also that the proceedings under the Insolvency and Bankruptcy Code were pending before NCLT and the Resolution Professional (RP) had been appointed. Despite that the arbitrator made the unreasoned award.
10. Perusal of the arbitration record reveals as follows:
(i) Vide legal notice dated 28.04.2017, the respondent intimated the petitioners and PSREPL that they had failed to adhere to the financial discipline and called upon them to clear the outstanding dues within 07 days from the date of receipt of the said notice. It was made clear that in case of failure, the respondent would initiate appropriate legal proceedings. As such, vide the said notice, the respondent brought to the notice of the petitioners and PSREPL that the disputes had arisen between them.
Admittedly, the petitioners failed to comply with the said notice.
(ii) Vide notice dated 10.05.2017, the respondent nominated/appointed the Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 5 of 54 OMP (COMM.) No.1/2019 arbitrator to resolve the dispute between them. In response thereto, on 10.05.2017, the arbitrator directed the respondent to send a reference notice to the interested parties mentioning his appointment as the arbitrator and terms of reference and gave them an opportunity to liquidate liability within a specified period.
(iii) The respondent vide its notice dated 12.05.2017, addressed to the petitioners mentioned about their liabilities which they failed to discharge and also drew the attention to clause 19 of the agreement containing the arbitration clause and the invocation of the same and the appointment of the arbitrator by it. The respondent again called upon the petitioners to discharge their liability otherwise the arbitrator would proceed with the arbitral proceedings under the Act. Along with the said letter, the postal receipts are annexed which substantiates that the said letter was served upon the petitioners.
(iv) On 12.05.2017, the arbitrator made the disclosure under section 12 (1) (b) of the Act.
(v) Vide order dated 27.07.2017, the arbitrator noted that the petitioners had not discharge their liabilities. Consequently, the arbitrator directed the notice to be issued upon all the parties for the hearing to be conducted on Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 6 of 54 OMP (COMM.) No.1/2019 11.08.2017.
(vi) Vide notice dated 28.07.2017 sent by the arbitrator, the petitioners and the respondent were intimated about the date, time and place of hearing. It is evident from the record that the said letter was duly received by the petitioners.
(vii) On 11.08.2017, both the sides appeared before the arbitrator and the matter was firstly adjourned for 25.08.2017 and thereafter, for 15.09.2017.
(viii) On 15. 09.2017, the petitioners moved the application under section 12 and 13 of the Act on the ground that that the respondent had no power to appoint the arbitrator without the consent of the petitioners and that in terms of section 12 of the Act, the arbitrator had not made the disclosure in the form of the 6th schedule of the Act. It was also pleaded that there existed various grounds as contained in the 5thand 7thschedule of the Act which gave rise to justifiable doubts as to the independence and impartiality of the arbitrator. In the past three years, the respondent had appointed the arbitrator on two or three occasions. Hence, the arbitrator was ineligible to be appointed as an arbitrator. Accordingly, it was prayed that the arbitrator should withdraw from the present proceedings.
(ix) Vide order dated 03.11.2017, the arbitrator Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 7 of 54 OMP (COMM.) No.1/2019 dismissed the application under section 12 and 13 of the Act moved by the petitioners.
(x) On 02.02.2018, CW1 tendered his affidavit by way of evidence dated 15.12.2017 on behalf of the respondent as Ex. CW1. That time, it was noted that the petitioners objected to the mode of proof of the documents relied upon by CW1. At the request of the petitioners, cross examination of CW-1 was deferred for 13.03.2018. That day, the cross examination of CW-1 was again deferred at the request of the petitioners and last opportunity was granted to the petitioners to cross-examine CW-1 on 23.03.2017. That day, again adjournment was sought on behalf of the petitioners to cross-examine CW-1. However, keeping in view the conduct of the petitioners, the arbitrator closed the right of the petitioners to cross- examine CW-1. Simultaneously, the matter was fixed for the petitioner's herein/respondents therein evidence on 20.04.2018.
(xi) On 20.04.2018, the arbitrator noted that despite given the opportunities, the petitioners had not filed affidavit by way of evidence. That day, an adjournment was sought on behalf of the petitioners. The arbitrator noted that in terms of section 29A of the Act, the proceedings had to be Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 8 of 54 OMP (COMM.) No.1/2019 concluded within a year from 12.05.2017. Therefore, the arbitrator closed the right of the petitioners to lead evidence and fixed the matter for final arguments on 04.05.2018.
(xii) On 04.05.2018, the petitioners filed the affidavit by way of evidence.
Simultaneously, the petitioners moved the application under order 18 Rule 17 CPC for recalling CW-1 for cross examination. Vide reasoned order dated 04.05.2018, the said application was dismissed by the arbitrator. It was also noted that the petitioners did not agree to give extension of time to conclude the arbitration proceedings in terms of section 29 A (3) of the Act.
11. In view of the foregoing discussions, it can be held that the petitioners had not cross- examined CW-1 despite given several opportunities. Therefore, the testimony of CW-1 remained unrebutted. Further, the petitioners had not led the evidence in their defence. The petitioners had not moved any application to recall the order dated 20.04.2018 vide which their right to lead evidence was closed. As such, the order dated 20.04.2018 became final. Not the least, the petitioners made a statement contrary to the record that the arbitrator had not considered their application under order 18 Rule 17 of CPC.
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12. Further, it is nowhere the case of the petitioners that they had not executed the documents in favour of the respondent which had been filed by it in the arbitral proceedings. Though, the petitioners pleaded that the respondent got signed the blank documents from them, however, they failed to prove the said fact. The petitioners have also failed to disclose as to what prejudice had been caused to them by not filing the original documents by the respondent in the evidence. Not the least, as provided under section 19 (1) of the Act, the arbitrator was not bound by the procedure of Code of Civil Procedure, 1908 (CPC) and Indian Evidence Act, 1872. The petitioners have also failed to prove that the statement of claim was not signed, verified and instituted by the duly authorised person on behalf of the respondent and that the statement of account filed by the respondent was ambiguous and incorrect, hence, the same could not be relied upon by the arbitrator and that the respondent had charged the exorbitant interest from the petitioners. Perusal of the impugned award also reveals that the arbitrator had made the reasoned award. Therefore, there is no substance in the abovementioned pleas raised by counsel for the petitioners.
13. The arbitral record is completely silent that the petitioners had raised any objection before the arbitrator that any proceeding relating to the petitioners was spending before NCLT and RP had been appointed. Even before this court, the Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 10 of 54 OMP (COMM.) No.1/2019 petitioners have not disclosed as to who had initiated the proceedings before NCLT and against whom and the date of the order vide which RP had been appointed. Therefore, there is no substance in the pleas raised by counsel for the petitioners.
14. Counsel for the petitioners that the respondent had unilaterally referred the matter to the arbitrator without obtaining the consent of the petitioners. Before issuance of the notice for appearance, the arbitrator had not complied with the requirement of section 12 of the Act as he had not made any disclosure in writing in terms of 6 th schedule of the Act. In fact, in last three years, the arbitrator had acted as an arbitrator on two or more than two occasions for the respondent. He also pleaded that the petitioners moved the application dated 15.09.2017 under section 12 and 13 of the Act before the arbitrator and prayed that the arbitrator should withdraw as the sole arbitrator to adjudicate upon the dispute between the parties. However, the arbitrator dismissed the said application on 03.11.2017 without making any disclosure in terms of the 6thschedule of the Act. Hence, the impugned award made by the arbitrator is bad in law.
15. Before proceedings further, it is to be ascertained as to whether the arbitrator was appointed by the respondent as per the agreement between the parties or not.
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16. Admittedly, the petitioners and the respondent entered into the loan agreement dated 30.04.2015 and the clause 19 of the said agreement contained the arbitration clause and the same is reproduced herein below for the sake of convenience:
"19.1 The parties agree that, in the event of any dispute or differences or disagreement or claim arising out of or touching upon this Agreement including any dispute as to validity, interpretation, breach of any provision of the Agreement or with respect to any amount outstanding ("Dispute"), shall be referred to a sole arbitrator appointed by INTEC. Such arbitration shall be conducted in accordance with the provisions of the Arbitration and Conciliation Act, 1996 and/or any amendment or re-enachtment thereof by a sole arbitrator to be appointed by INTEC,.
19.2 The Parties expressly agree, that in any circumstance the appointment of sole arbitrator shall be done by INTEC and INTEC shall always deemed to be the sole Party for securing the appointment of the sole arbitrator, without recourse to any other alternative mode of appointment. 19.3 The seat of the sole arbitrator shall be New Delhi and the arbitration shall be conducted in English language."
17. It is pertinent to mention here that the abovementioned arbitration clause came into existence before the amended Arbitration Act, 2015 came into operation i.e. 23.10.2015. It is nowhere the Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 12 of 54 OMP (COMM.) No.1/2019 case of the petitioners that they and PSREPL had not signed the said agreement containing the arbitration clause or that they were not aware of the said arbitration clause. It is also not the case of the petitioners that they signed the said agreement without reading and understanding the contents of the same and their implication. Counsel for the petitioners though pleaded that the respondent obtained the signatures of the petitioners on certain blank documents. However, as discussed above, the petitioners have failed to prove the said fact. Accordingly, it can be held that the petitioners had voluntarily signed the said agreement containing the arbitration clause after reading and understanding the contents of the same and their implication.
18. Vide clause 19 of the agreement, the petitioners agreed that in case of dispute, the same shall be resolved through the arbitration and the respondent had the duty to appoint the sole arbitrator. Vide the said agreement, the petitioners had also agreed to the seat of the arbitration and its language.
19. It is nowhere the case of the petitioners that while appointing the sole arbitrator, the respondent had not followed the procedure prescribed therein. Further, it is neither reflected from the clause no. 19 nor it is the case of the petitioners that after the disputes had arisen and before the respondent could appoint the arbitrator, the respondent had to again seek the consent of the Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 13 of 54 OMP (COMM.) No.1/2019 petitioners and PSREPL to appoint arbitrator.
20. In the agreement, no person was named as the arbitrator. It is nowhere the case of the petitioners that the respondent was not competent or suffered from any ineligibility to appoint the arbitrator.
21. In view of the foregoing discussions, it can be held that in terms of section 11 (2) of the Act, the parties had agreed to the procedure for appointing the arbitrator i.e. in case of any dispute between them, the same shall be referred to the sole arbitration of an arbitrator to be appointed by the respondent. Accordingly, the respondent appointed the arbitrator in terms of clause 19 of the said agreement and there was no requirement of consent of the petitioners before nominating/appointing the arbitrator by the respondent after the disputes had arisen between the parties.
22. Now the question arises as to whether the arbitrator had made the disclosure in terms of the 5th and 6th schedule of the Act. If yes, whether there existed justifiable grounds to his independence and impartiality.
23. The pleas raised by counsel for the petitioners under section 12 of the Act can be divided into two parts i.e. the 5th schedule and the 7th schedule of the Act.
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24. In the judgment titled as"Bharat Broadband Network Ltd. v. United Telecoms Ltd.", reported in (2019) 5 SCC 755, the Hon'ble Supreme Court held:
"14. From a conspectus of the above decisions, it is clear that Section 12(1), as substituted by the Arbitration and Conciliation (Amendment) Act, 2015 ["the Amendment Act, 2015"], makes it clear that when a person is approached in connection with his possible appointment as an arbitrator, it is his duty to disclose in writing any circumstances which are likely to give rise to justifiable doubts as to his independence or impartiality. The disclosure is to be made in the form specified in the Sixth Schedule, and the grounds stated in the Fifth Schedule are to serve as a guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. Once this is done, the appointment of the arbitrator may be challenged on the ground that justifiable doubts have arisen under sub-section (3) of Section 12 subject to the caveat entered by sub-section (4) of Section 12. The challenge procedure is then set out in Section 13, together with the time-limit laid down in Section 13(2). What is important to note is that the Arbitral Tribunal must first decide on the said challenge, and if it is not successful, the Tribunal shall continue the proceedings and Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 15 of 54 OMP (COMM.) No.1/2019 make an award. It is only post award that the party challenging the appointment of an arbitrator may make an application for setting aside such an award in accordance with Section 34 of the Act.
15. Section 12(5), on the other hand, is a new provision which relates to the de jure inability of an arbitrator to act as such. Under this provision, any prior agreement to the contrary is wiped out by the non obstante clause in Section 12(5) the moment any person whose relationship with the parties or the counsel or the subject-matter of the dispute falls under the Seventh Schedule. The sub-section then declares that such person shall be "ineligible" to be appointed as arbitrator. The only way in which this ineligibility can be removed is by the proviso, which again is a special provision which states that parties may, subsequent to disputes having arisen between them, waive the applicability of Section 12(5) by an express agreement in writing. What is clear, therefore, is that where, under any agreement between the parties, a person falls within any of the categories set out in the Seventh Schedule, he is, as a matter of law, ineligible to be appointed as an arbitrator. The only way in which this ineligibility can be removed, again, in law, is that parties may after disputes have arisen between them, waive the applicability of this sub-section Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 16 of 54 OMP (COMM.) No.1/2019 by an "express agreement in writing". Obviously, the "express agreement in writing" has reference to a person who is interdicted by the Seventh Schedule, but who is stated by parties (after the disputes have arisen between them) to be a person in whom they have faith notwithstanding the fact that such person is interdicted by the Seventh Schedule.
17. The scheme of Sections 12, 13 and 14, therefore, is that where an arbitrator makes a disclosure in writing which is likely to give justifiable doubts as to his independence or impartiality, the appointment such arbitrator may be challenged under Sections 12(1) to 12(4) read with Section 13. However, where such person becomes "ineligible" to be appointed as an arbitrator, there is no question of challenge to such arbitrator, before such arbitrator. In such a case i.e. a case which falls under Section 12(5), Section 14(1)(a) of the Act gets attracted inasmuch as the arbitrator becomes, as a matter of law (i.e. de jure), unable to perform his functions under Section 12(5), being ineligible to be appointed as an arbitrator. This being so, his mandate automatically terminates, and he shall then be substituted by another arbitrator under Section 14(1) itself. It is only if a controversy occurs concerning Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 17 of 54 OMP (COMM.) No.1/2019 whether he has become de jure unable to perform his functions as such, that a party has to apply to the Court to decide on the termination of the mandate, unless otherwise agreed by the parties. Thus, in all Section 12(5) cases, there is no challenge procedure to be availed of. If an arbitrator continues as such, being de jure unable to perform his functions, as he falls within any of the categories mentioned in Section 12(5), read with the Seventh Schedule, a party may apply to the Court, which will then decide on whether his mandate has terminated. Questions which may typically arise under Section 14 may be as to whether such person falls within any of the categories mentioned in the Seventh Schedule, or whether there is a waiver as provided in the proviso to Section 12(5) of the Act. As a matter of law, it is important to note that the proviso to Section 12(5) must be contrasted with Section 4 of the Act. Section 4 deals with cases of deemed waiver by conduct;
whereas the proviso to Section 12(5) deals with waiver by express agreement in writing between the parties only if made subsequent to disputes having arisen between them.
25. In the judgment titled as"Bhayana Builders Pvt Ltd vs Oriental Structural Engineers", reported in 2018 SCC OnLine Del 7634,it was held:
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3. ........................... recently a Coordinate Bench of this Court in D.K. Gupta &Anr. v. Renu Munjal, 2017 SCC Online Del 12385, considering the effect of Section 12(5) of the Act and the judgment of the Supreme Court in TRF (supra) has held as under:
"8. However the arbitration clause pertaining to this case is on a different note. Here an arbitrator so appointed is not an employee of a party to the agreement. The arbitration clause herein rather gives a choice to one of the parties viz a lender to appoint an arbitrator. Thus perhaps is a striking difference between the two arbitration clauses viz., clause 33 of TRF Ltd. (supra) and clause 8.9.4 of the agreement dated 02.09.2013 herein. In TRF Ltd. (supra) the Managing Director of the buyer, being an employee of the buyer in a way represents the buyer itself, which is not the case here. Admittedly there exist no bar under the Act which restrains a party to appoint an Arbitrator.
Rather section 11(2) of the Arbitration and Conciliation, 1996 empowers the parties to agree on a procedure for appointment of an arbitrator, which exactly is the situation here. ............"
9. When there exists no prohibition in the Act for a party to appoint an arbitrator, then a lender or a buyer, per any agreement, may have a right to choose an arbitrator, as even noted in para 17 of TRF Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 19 of 54 OMP (COMM.) No.1/2019 (supra) as under : -
"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 have amended other provisions. He has also observed that the grounds including the objections under the Fifth and the Seventh Schedules of the amended Act can be raised before the Arbitral Tribunal and further when the nominated arbitrator has made the disclosure as required under the Sixth Schedule to the Act, there was no justification for interference. That apart, he has also held in his conclusion that besides the stipulation of the agreement governing the parties, the Court has decided to appoint the arbitrator as the sole arbitrator to decide the dispute between the parties."
54. In the Act, the test for neutrality is set out in Section 12(3) which provides--
Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 20 of 54 OMP (COMM.) No.1/2019 '12. (3) An arbitrator may be challenged only if--
(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality....'
55. The Act does not lay down any other conditions to identify the "circumstances" which give rise to "justifiable doubts", and it is clear that there can be many such circumstances and situations. The test is not whether, given the circumstances, there is any-actual- bias for that is setting the bar too high; but, whether the circumstances in question give rise to any-
justifiable apprehensions-of bias.
24. As noted above, the Agreements that provide for one of the party to choose the Arbitral Tribunal for the parties have been in existence even prior to the insertion of the Section 12(5) of the Act. If this was the mischief that the Law Commission as also the amendment by way of insertion of Section 12(5) of the Act sought to remedy, it would have said so in clear and unambiguous terms.
The legislature, however, did not make such contracts unenforceable but only proceeded to safeguard the parties against appointment of Arbitrators against whom circumstances exist that can give rise to a justifiable doubt as to their independence or impartiality.
28. This principle of party autonomy is also found in various provisions of the Act including Section 10: which Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 21 of 54 OMP (COMM.) No.1/2019 leaves the parties free to determine the number of Arbitrators; Section 11: which leaves the parties free to agree on a procedure for appointing a Arbitrator; Section 13 (1): where the parties are left free to agree on procedure to challenge the Arbitrator; Section 19(2): which leaves the parties free to agree on a the procedure to be followed by the Arbitral Tribunal in conducting its proceedings; Section 20: which leaves the party free to agree on the place of Arbitration; Section 22 :which leaves the parties free to agree upon the language or languages to be used in the Arbitration Proceedings and so on.
29. On the other hand, the Act, by way of the amendment, has also specifically restricted such party autonomy where it found it just to do so. Reference in this regard can be drawn to Section 31A (5) of the Act.
30. Even Section 12(5) of the Act restricts the party autonomy as it provides that any person, whose relationship with the party or counsel or the subject matter of the disputes falls under any of the categories specified in the Seventh Schedule, notwithstanding any prior agreement, shall be ineligible to be appointed as an Arbitrator.
31. Party autonomy, therefore, has been taken away only to a limited extent and circumstances and it is not for this Court to expand such exclusion in the garb of Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 22 of 54 OMP (COMM.) No.1/2019 interpretation of the Act.
34. One must also take note of the principle that the Arbitrator appointed is not the delegatee of any party. In fact, he has to act independent of the parties. The Arbitrator so appointed is not the agent of the party appointing him. In that view, the judgment of TRF Ltd.
(supra) would not be applicable to the facts of the present case."
26. In the judgment titled as"Mcleod Russel India Limited & Anr vs Aditya Birla Finance Limited &Ors", reported in 2023 SCC OnLine Cal 330, the Hon'ble Calcutta High Court held:
17. ......................... The challenge to the appointment of an arbitrator on the grounds provided under section 12 or 14 is not an unconditional legislative grant; the challenge must be accompanied by supporting circumstances which give rise to justifiable doubts as to the arbitrator's independence or impartiality or the arbitrator's lack of qualifications [12(3)(a) and (b)].
........................."
27. In view of the judgment Bharat Broadband Network Ltd. (supra), it can be held that section 12(1) of the Act provides that when a person is approached in connection with his possible appointment as an arbitrator, it is his duty to disclose in writing any circumstances as mentioned in the 5th Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 23 of 54 OMP (COMM.) No.1/2019 schedule which are likely to give rise to justifiable doubts as to his independence or impartiality and the said disclosure be made in the form specified in the 6th Schedule. Once this is done, the appointment of the arbitrator may be challenged on the ground that justifiable doubts have arisen under section 12 (3). The procedure to challenge the same is provided under Section 13. If it is not successful, the arbitrator shall continue the proceedings and make an award. It is only post award that the aggrieved party can make an application for setting aside such an award in accordance with section 34 of the Act.
28. On the other hand, section 12(5) of the Act provides that notwithstanding any prior agree- ment to the contrary, the moment any person whose relationship with the parties or the counsel or the subject-matter of the dispute falls under the 7 th Schedule, such person shall be "ineligible" to be ap- pointed as arbitrator. The only way in which this inel- igibility can be removed is by the proviso to section 12(5) of the Act. The requirement presumes that the agreement in writing must be made by the party who takes the objection to the appointment of the arbitra- tor and seeks recourse under section 12 (5). The re- quirement does not entail both the parties executing a formal agreement since the other party (who has made the appointment) may not raise the issue at all.
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29. Therefore, where an arbitrator makes a disclosure in writing which is likely to give "justifi- able doubts" as to his independence or impartiality, the appointment such arbitrator may be challenged under sections 12(1) to 12(4) read with section 13. On the other hand, where such person becomes "inel- igible" to be appointed as an arbitrator, a case which falls under section 12(5), section 14(1)(a) of the Act gets attracted as the arbitrator becomes, as a matter of law (i.e. de jure), unable to perform his functions under section 12(5). If an arbitrator continues as such, being de jure unable to perform his functions, as he falls within any of the categories mentioned in Section 12(5), read with the 7th Schedule, a party may apply to the Court, which will then decide on whether his mandate has terminated. However, as held in the judgment Mcleod Russel India Limited (supra),the challenge to the appointment of an arbi- trator on the grounds provided under section 12 or 14 of the Act must be accompanied by supporting circumstances which give rise to justifiable doubts as to the arbitrator's independence or impartiality or the arbitrator's lack of qualifications.
30. In the present case, vide the application under section 12 and 13 of the Act moved by the petitioners before the arbitrator, the petitioners had questioned the appointment of the arbitrator on the ground that before issuance of notice of appearance, the arbitrator had not made the disclosure in the form as provided in the 6thschedule in terms of section 12 Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 25 of 54 OMP (COMM.) No.1/2019 of the Act. As discussed above, on 12.05.2017, the arbitrator had made the disclosure in terms of the said provision. As such, the submissions made by counsel for the petitioners to this effect are contrary to record. Further, it is evident from the arbitral record and the present petition that it was nowhere the case of the petitioners that the disclosure made by the arbitrator on 12.05.2017 was incorrect, false and misleading in nature.
31. Further, vide the said application, the petitioners had questioned the appointment of the arbitrator on the ground that there existed various grounds contained in the 5th schedule and the 7th schedule of the Act which gave justifiable grounds as to independence and impartiality of the arbitrator due to which he was ineligible to be appointed as an arbitrator.
32. At the outset, it is mentioned, the 5th schedule of the Act contains 34 entries. In the said application, it was pleaded that the respondent had appointed the arbitrator on two or three occasions in past three years and the said ground falls in entry no. 22 of the 5th schedule of the Act. In reply, the respondent admitted the same.
33. The objection as to the 5th schedule is dealt by section 12 (3) of the Act and section 13 of the Act provides the procedure to challenge the same. In terms of section 13 (2) of the Act, the petitioners Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 26 of 54 OMP (COMM.) No.1/2019 had the opportunity to challenge the arbitrator within 15 days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstance referred to in section 12 (3) of the Act. It is evident from the record that vide legal notice dated 12.05.2017, the respondent informed the petitioners about the appointment of the arbitrator. As discussed above, the arbitrator made the disclosure on 12.05.2017. The petitioners received the notice dated 28.07.2017 and appeared before the arbitrator on 11.08.2017. The petitioners moved the application under section 12 of the Act on 15.09.2017. As such, the application was moved much after the expiry of 15 days in terms of the section 13 (2) of the Act. The arbitrator after hearing the parties had dismissed the said application vide its order dated 03.11.2017. It is mentioned that in the present petition, the petitioners have not challenged the findings of the arbitrator given while dismissing their application on 03.11.2017. As such, the pleas raised by counsel for the petitioners to this effect are not sustainable in law.
34. As discussed above, the petitioners have questioned the appointment of the arbitrator on the basis of the entry no. 22 of the 5th schedule of the Act that the respondent had appointed the arbitrator in two or three occasions in past three years. As held in the judgment Mcleod Russel India Limited (supra), the challenge to the appointment of an arbitrator on the grounds provided under section 12 of the Act Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 27 of 54 OMP (COMM.) No.1/2019 must be accompanied by supporting circumstances which give rise to justifiable doubts as to the arbitrator's independence or impartiality or the arbitrator's lack of qualifications [12(3)(a) and (b)]. In the present case, the petitioners have not placed any material on record to show that the said fact in itself is sufficient to raise justifiable doubt as to appointment of the arbitrator.
35. In view of the foregoing discussions, it can be held that there existed no ground which gives rise to justifiable doubts as to the arbitrator's independence or impartiality or the arbitrator's lack of qualifications [12(3)(a) and (b)].
36. Now the question arises as to whether the arbitrator had suffered from any ineligibility as mentioned in the 7th schedule of the Act.
37. Section 12 (5) read with the 7th schedule of the Act makes it clear that if the arbitrator falls in any of the categories specified in the 7th schedule, he becomes ineligible to act as an arbitrator. Once he becomes ineligible, then under section 14 (1) (a) of the Act, he becomes de jure incapable to perform his functions in law because he is regarded as ineligible.
38. In the present case, to hold the arbitrator ineligible to act as an arbitrator, it is to be seen whether there existed the circumstances mentioned in the 7th schedule of the Act which would attract the Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 28 of 54 OMP (COMM.) No.1/2019 provisions of section 12 (5) of the Act and nullify any prior agreement to the contrary.
39. The 7th schedule of the Act contains 19 entries. The petitioners in para 8 of the application under section 12 and 13 of the Act pleaded that there existed various grounds as contained in the 5 th and the 7th schedule of the Act which gave justifiable doubts as to independence and impartiality of the arbitrator. To this effect, they specifically mentioned the entry no. 22 of the 5th schedule i.e. The respondent had appointed the arbitrator on two or three occasions in past three years. However, the entry 22 of the 5th schedule does not find mention in the 7th schedule of the Act. In the said application, the petitioners had not pleaded any fact nor raised any objection as to the entries no. 1 to 19 of the 7thschedule despite the fact that they mentioned the said schedule in the said application. Hence, it can be held that the petitioners remained completely silent about any of the entries mentioned in the 7thschedule, the establishment of which could render the arbitrator ineligible within the meaning of section 12 (5) of the Act. Hence, it can be held that the petitioners had neither mentioned nor pleaded any specific ground/entry as specified under the 7th schedule to hold the arbitrator ineligible to act as an arbitrator.
40. As mentioned above, the petitioners in their application moved under section 12 and 13 of the Act, had specifically mentioned about the 7th Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 29 of 54 OMP (COMM.) No.1/2019 schedule of the Act. It is worth mentioning here that the said application was moved by the petitioners through their counsel and as evident from the arbitrator record, they had contested the said proceedings through their counsel. Hence, it can be held that the petitioners had been properly assisted by the legal professional who was well versed with the legal knowledge to this effect. Despite that, the petitioners had neither mentioned nor pleaded any specific ground/entry as specified under the 7th schedule to hold the arbitrator ineligible to act as an arbitrator.
41. Admittedly, the application was decided by the arbitrator on 03.11.2017. Presume for the sake of arguments only that the arbitrator had wrongly not held himself de jure ineligible to continue with the arbitration proceedings and had not terminated his authority, then, in terms of section 14 (2) of the Act, the petitioners must have approached the competent court for termination of the authority of the arbitrator to continue with the arbitration proceedings. Admittedly, the petitioners have not taken any such step in the present case.
42. The date when the arbitration clause was entered into neither the amended Arbitration Act, 2015 nor the judgment "TRF Ltd. Vs. Energo Engg. Projects Ltd." reported in (2017) 8 SCC 377 had not come into existence. However, during the arbitral proceedings, the TRF judgement had come into Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 30 of 54 OMP (COMM.) No.1/2019 existence on 03.07.2017. As discussed above, the petitioners were properly assisted by their counsel i.e. a legal professional. Therefore, if the petitioners were really aggrieved by the appointment of the arbitrator being ineligible in view of section 12 (5) of the Act, they must have raised objection to that effect with the help of the said judgement. However, that is not done by the petitioners. On the contrary, even after dismissal of their application on 03.11.2017, as discussed below, they had left no stone unturned to defend themselves in those proceedings. Therefore, it can be held that the petitioners had submitted to the jurisdiction of the arbitrator.
43. In view of the foregoing discussions, it can be held that the arbitrator had not suffered from any ineligibility as mentioned in the 7th schedule of the Act to act as an arbitrator.
44. Counsel for the petitioners pleaded that the respondent had unilaterally appointed the arbitrator in the present case. Hence, the said appointment was hit by section 12 (5) of the Act. Hence, the impugned award is bad in law. In support of his submissions, counsel for the petitioners relied upon the judgments"Perkins Eastman Architects DPC &Anr. Vs. HSCC (India) Ltd.", passed by the Hon'ble Supreme Court in Arbitration Application no. 32/2019 and "Govind Singh vs. M/s. Satya Group Pvt. Ltd." passed by the Delhi High Court reported in 2023 SCC Online Del 37.
Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 31 of 54 OMP (COMM.) No.1/2019
45. Now the question arises whether the arbitrator was de jure incapable to act as an arbitrator within the meaning of section 14 of the Act as his appointment was hit by section 12 (5) of the Act.
46. In the judgment Bhayana Builders Pvt Ltd (supra),it was held:
"34. One must also take note of the principle that the Arbitrator appointed is not the delegatee of any party. In fact, he has to act independent of the parties. The Arbitrator so appointed is not the agent of the party appointing him. In that view, the judgment of TRF Ltd. (supra) would not be applicable to the facts of the present case.
35. An arguments has been raised by the learned counsel for the petitioner that as the Arbitration Agreement in the present case also uses the words "sole Arbitrator to be nominated (including nomination of replacement of Arbitrator, if necessitated by vacancy by vacancy of the post caused by any reason whatsoever) by the Managing Director of the First Party", the person so appointed would become the delegatee of the Managing Director of the respondent and therefore, in terms of the judgment in TRF Ltd. (supra), would become ineligible for being appointed as a Sole Arbitrator. This argument is also fallacious. The word "nominated" in the Arbitration Agreement, in my opinion, is not in the nature of a delegation of power as was in the case of TRF Ltd.
Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 32 of 54 OMP (COMM.) No.1/2019 (supra).
36. In Black's Law Dictionary, Eighth Edition, the word 'nominate' has been described as under:--
"nominate, vb. 1. To propose (a person) for election or appointment. < Steven nominated Jane for president > [Cases : Elections ⇔ 122-147; Officers and Public Employees ⇔ 8. C.J.S. Elections §§ 93, 95, 97-110, 111(1), 112-114, 115(1), 116, 118(1), 119(1), 135-137, 162; Officers and Public Employees§ 47.] 2. To name or designate (a person) for a position < the testator nominated an executor, who later withdrew because he couldn't perform his duties >.
[Cases : Executors and Administrators ⇔ 14, 17(7) C.J.S. Executors and Administrators §§ 17- 21, 43.]
37. In Stroud's Judicial Dictionary of Words and Phrases, Forth Edition, Vol.3, the word 'nominate' has been defined as under:-- "NOMINATE xxxxxx (5) A power given in partnership articles to one of the parties to "nominate and INTRODUCE into the firm" another person, involves as valid contract by the other parties to the articles that the new partner, when nominated and introduced, shall come in with their consent as entirely as if they had adopted him by name (Lovegrove v. Nelson, 3 My. & K. 20, applied by Stirling L.J., Byrne v.
Reid (1902) 2 Ch. 742, 743)."
38. In Major Law Lexicon by P. Ramanatha Aiya, 4 Edition, 2010, Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 33 of 54 OMP (COMM.) No.1/2019 the word 'nominate' had been defined to mean as under:--
"Nominate : To select a candidate to be voted for a public officer; or as a member of a legislative or representative assembly; to name or to recommend for confirmation. To name or designate a person for some position or office. In a will the words "I nominate" may be used as the equivalent of the more formal and usual words, "I bequeath."
The word "nominate" means to recommend for confirmation. To propose formally for an election; to appoint by name.
TO NOMINATE, NAME. To nominate and to name are both to mention by name; but the former is to mention for a specific purpose :
the latter is to mention for general purpose : persons only are nominated, things as well as persons are named; one nominates a person in order to propose him, or appoint him, to an office, but one names a person casually, in the course of conversation, or one names him in order to make some inquiry respecting him. To be nominated is a public act; to be named is generally private; to be nominated is always an honour; to be named is either honourable, or the contrary, according to the circumstances under which it is mentioned: a person is nominated as member of parliament; he is named whenever he is spoken of."
39. In Datar Switchgears Ltd.
Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 34 of 54 OMP (COMM.) No.1/2019 (supra), the Supreme Court had explained the meaning of word "nomination" as under:--
"25. Lastly, the appellant alleged that "nomination" mentioned in the arbitration clause gives the 1 respondent a right to suggest the name of the arbitrator to the appellant and the appointment could be done only with the concurrence of the appellant. We do not find any force in the contention.
26. In P. Ramanatha Aiyar's Law Lexicon (2 Edn.) at pp. 1310-11, the meaning of the word ""nomination" is given as follows:
"1. The action, process or instance of nominating; 2. the act, process or an instrument of nominating; an act or right of designating for an office or duty. 'Nominations' is equivalent to the word 'appointments', when used by a mayor in an instrument executed for the purpose of appointing certain persons to office."
27. Nomination virtually amounts to appointment for a specific purpose and the 1 respondent has acted in accordance with clause 20.9 of the agreement. So long as the concurrence or ratification by the appellant is not stated in the arbitration clause, the nomination amounts to selection of the arbitrator."
40. In my view, therefore, the word "nominated" as used in Clause 9.03 of the Work Order in the present case only means to select a Sole Arbitrator for the parties.
Person appointed/selected as an Arbitrator would not become the Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 35 of 54 OMP (COMM.) No.1/2019 delegates or agent or representative of the Managing Director of the respondent or the respondent itself.
41. While I am upholding the power of a party to appoint a Sole Arbitrator if so agreed and provided for in the Arbitration Agreement, I must emphasise that the burden of ensuring that the person so appointed shall not fall foul of any of the provisions of the Fifth or the Seventh Schedule of the Act will be even higher and open to a greater scrutiny. The spirit behind the amendment to the Act shall always have to be kept in mind while appointing the Arbitrator or considering any challenge thereto................"
47. In the judgment Mcleod Russel India Limited (supra), the Hon'ble Calcutta High Court held:
33. Section 12(5) is a relationships-conflict provision. The disqualification of an arbitrator is premised on the intersections of the arbitrator's relationship with the parties/counsel/subject matter of the dispute which falls under any of the categories specified in the Seventh Schedule. The ineligibility is hence to be fixed on the Seventh Schedule, in specific, as provided for in section 12(5). The proviso to section 12(5) green-lights the parties to waive all objections to ineligibility which fall under the Seventh Schedule. The proviso does not carve out any exception akin to the non-
waivable Red List of the IBA Guidelines where certain conflicts remain outside the purview of waiver by agreement. Since the Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 36 of 54 OMP (COMM.) No.1/2019 Act gives the right to the parties to circumvent any and all relationship-based conflicts which would disqualify an arbitrator under the Seventh Schedule, no appointments can be treated as void ab initio or incapable of being cured by an express written agreement.
34. Section 12(5) specifies the disqualification of an arbitrator and not of the party appointing the arbitrator.
35. The proviso to section 12(5) which allows the parties to a dispute to waive the applicability of section 12(5) by an express agreement in writing would hence take from and be confined to section 12(5). In other words, the express agreement of the parties to get around the disqualification under the categories mentioned in section 12(5) can only be in relation to the Seventh Schedule. This is clear from the words "... waive the applicability of this sub- section ..." in the proviso (underlined for emphasis).
36. The de jure or de facto termination of mandate of an arbitrator under section 14 must not only be assessed in light of the proviso to section 12(5) but also with reference to the express agreement entered into between the parties subsequent to the dispute having arisen between the parties.
37. The proviso to section 12(5) must be read in sync with the momentum of the 1996 Act. The proviso to section 12(5) is not a speed-breaker in the momentum to be achieved through arbitration but an accelerator to the process so that parties may resolve any lingering ineligibility issues and put such matters at rest once and for all. The proviso is not to be treated as an escape-route to a disgruntled party Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 37 of 54 OMP (COMM.) No.1/2019 who is dissatisfied with a decision of an arbitrator and decides to do a volte-face after participating in the proceedings for a considerable length of time.
39. All unilateral appointments of arbitrators cannot automatically be nullified on the application of section 12(5). The perceived disqualification must be assessed only on the mandate of section 12(5) which is within the guard-rails of the Seventh Schedule. Entry 12 of the Seventh Schedule specifically deals with a situation where the arbitrator is a manager, director or part of the management or has a controlling influence in one of the parties. This is not the same and cannot be put on an equal footing as an arbitrator being appointed by one of the parties to the dispute. A distinction must be made on the obvious dissimilarity between an arbitrator being hit by any one or all of the conflicted relationships in the Seventh Schedule and an arbitrator being rendered ineligible simply by reason of being appointed by one of the parties to the dispute.
42. The decisions in TRF, Bharat Broadband, Perkins and Jaipur Zila Parishad proceed on the basis of the named arbitrator also serving as the MD/CMD or a Director of one of the parties. In other words, these three cases are of a persona designata arbitrator where the persona designata was to be the arbitrator or had the right to nominate an arbitrator in his place. (for emphasis). The Supreme Court therefore, held that the person designated was per se ineligible under the Seventh Schedule read with section 12(5) of the Act to act as an arbitrator. These cases hence involve a Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 38 of 54 OMP (COMM.) No.1/2019 person who chose himself to act as the arbitrator and hence was automatically disqualified by the amendments brought to the Act in 2015 and specifically under the Seventh Schedule. This person naturally could not appoint a substitute in his or her place since that would be a mere extension of the ineligibility extended by one degree.
43. The ratio of TRF, Bharat Broadband and Perkins is therefore essentially that of an arbitrator who becomes ineligible by a statutory bar and consequently renders himself ineligible to nominate someone else to act as the arbitrator. The logic is that a disqualified person cannot delegate his position to another as that would amount to arbitration by the disqualified arbitrator himself. Hence, once the MD loses his position/identity as a sole arbitrator, the MD's right to nominate is automatically wiped out - TRF and Perkins.
44. In the present case, Clause 3 of the Arbitration Agreement provides for a "Sole Arbitrator to be appointed by the Investor". There is (a) no named / designated Arbitrator and (b) the Investor / any of its Directors has not claimed a right to act as the Arbitrator itself. The Investor has appointed a retired Judge of a High Court. Hence, the analogy sought to be drawn between the facts of the present case and those in TRF, Bharat Broadband and Perkins is factually distinguishable since in TRF the MD himself was a sole arbitrator and was disqualified to act as such by reason of the amending Act of 2016. Bharat Broadband and Perkins considered the facts of TRF and the consequent disqualification.
Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 39 of 54 OMP (COMM.) No.1/2019
45. Unilateral appointments being impermissible in law must be read to mean an unilateral appointment made by a person who himself is disqualified to act as an arbitrator under the Seventh Schedule and not each and every unilateral appointment made by one of the parties to the arbitration. Treating these situations as one and the same would amount to conflation of two different and distinct scenarios which is not what the Act mandates.
48. The petitioner banks on the decision in Perkins to contend that any advantage which a party may derive by nominating an arbitrator of its choice will carry an element of exclusivity in determining the course of the dispute resolution. The petitioner also places emphasis on Perkins to say that a person who has an interest in the outcome of the dispute cannot have the power to appoint a sole arbitrator.
49. On the factual score, Perkins was pronounced on an application under section 11 of the Act for appointment of an arbitrator. The Arbitration Agreement was of 22nd May, 2017 and the arbitrator was appointed on 30th July, 2019. The petition was filed immediately thereafter and the decision in Perkins was pronounced on 26th November, 2019. Second, the facts in Perkins did not involve any express written agreement under the proviso to section 12(5). Further, the contract between the parties was entered into after the amendment to the Act but before the decision in TRF (pronounced on 3rd July, 2017) where the law was declared on section 12(5) of the Act. Hence, the parties were not aware of the implications Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 40 of 54 OMP (COMM.) No.1/2019 of TRF with regard to automatic disqualification of the MD/CMD of one of the parties to be designated as the arbitrator.
50. The more material distinguishing factor is that paragraph 21 of Perkins clubs all unilateral appointments by one of the parties to an arbitration as falling within the statutory bar of section 12(5) but without reference to the Seventh Schedule. This would be clear from the reliance placed by the Court on TRF which was specifically a case under section 12(5) read with the Seventh Schedule. Therefore, Perkins amplifies and extends the disqualification under section 12(5) to all unilateral appointments divorced from any of the categories specified in the Seventh Schedule. Perkins also proceeded on the ratio of TRF namely whether the Managing Director, after becoming ineligible by operation, is still eligible to nominate an arbitrator.
51. The absence of any issue with regard to an express written agreement under the proviso to section 12(5) in Perkins amounts to a crucial difference in facts. As discussed above, the proviso allows the parties to the dispute to waive the ineligibility of an arbitrator under the Seventh Schedule by an express agreement in writing. The proviso hence enables the parties to obliterate any disqualification which an arbitrator may be visited with under the Seventh Schedule. In the present case, the express and unequivocal written statements made by the petitioner amounts to a waiver. Without doubt, the pleadings and statements made in the petitioner's applications wipe out any objections to the appointment of the Sole Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 41 of 54 OMP (COMM.) No.1/2019 Arbitrator. There was no such unequivocal acceptance of the arbitration by conduct or otherwise in Perkins. This has a transformational legal bearing on the disputes in the present case. Therefore, Perkins is not at all a problem for the respondent no. 1.
55. The Arbitrator in the present case does not fall under any of the prohibited relationships/categories in the Seventh Schedule including Entry 12 therein.
56. Entry 12 is being specifically mentioned following the contention of learned counsel appearing for the petitioners. Entry 12 applies where the arbitrator himself is a manager, director or part of the management or has a similar controlling influence in one of the parties. The Arbitrator in the present case is neither a manager or a director nor a part of the management of the respondent no. 1. The Arbitrator also does not have any controlling influence in the respondent no. 1 or any of the parties to the arbitration. The Arbitrator is a retired Judge of the Madhya Pradesh High Court.
57. The alleged ineligibility of the appointment of the Ld. Arbitrator was regularised under the proviso to section 12(5) by the express written documents executed by the petitioners and their continuous participation in the arbitration. The petitioners continued to participate in the arbitration despite having knowledge of the curable invalidity of the arbitration agreement and being aware of the implication of the judgments pronounced by the Supreme Court in TRF, Bharat Broadband and Perkins Eastman.
Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 42 of 54 OMP (COMM.) No.1/2019
58. The present case is of a unilateral appointment which is factually distinguishable (as in the decisions cited) from an arbitrator whose eligibility is compromised by any one or more of the Entries in the Seventh Schedule. There is an obvious difference - and so the decisions say - between an arbitrator who is disqualified under the Seventh Schedule and an arbitrator who himself is a party to the dispute. The two situations are different in fact, in logic as also in the decisions shown to the Court. The arbitration clause in the present case belongs to the first category since the Arbitrator was appointed by the respondent no. 1.
65. After discussing the import of section 12(5) read with the proviso, this Court finds and accordingly holds that section 12(5) is not applicable to this case since the alleged disqualification does not breach any one or more of the conflict-protections in the Entries of the Seventh Schedule. Even if it is assumed that the Arbitrator became ineligible by reason of the Seventh Schedule, the petitioners waived such disqualification by their express writings, conduct and agreement as envisaged under the proviso to section 12(5) of the Act.
48. Section 12 (5) of the Act specifies the disqualification of an arbitrator and not of the party i.e. the respondent in the present case, appointing the arbitrator. As discussed above, in the present case, the valid arbitration clause existed between the parties and no person was named as the arbitrator. It is not the case of the petitioners that the respondent was disqualified to appoint the arbitrator. As such, the respondent appointed the arbitrator in terms Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 43 of 54 OMP (COMM.) No.1/2019 thereof.
49. As held in the judgment Bhayana Builders Pvt Ltd (supra),in the present case,the arbitrator appointed was not the delegate or the agent of the respondent. The word "appoint" as used in clause 19 of the agreement only means to select a Sole Arbitrator for the parties. Person appointed/selected as an Arbitrator i.e. the arbitrator had not become the delegate or agent or representative of the respondent or the respondent itself. Further, neither it is not the case of the petitioners nor it is reflected from the record that the arbitrator was not independent or impartial in conducting the arbitration proceedings or making the award.
50. As held in Mcleod Russel India Limited (supra), all unilateral appointments of the arbitrators cannot automatically be nullified and can be treated as void ab initio on the application of section 12 (5) and the perceived disqualification is to be assessed only on the mandate of section 12 (5) and entries made in the 7th Schedule. Section 12 (5) specifies the disqualification of an arbitrator and not of the party appointing the arbitrator. Unilateral appointments being impermissible in law must be read to mean an unilateral appointment made by a person who himself is disqualified to act as an arbitrator under the 7th Schedule and not each and every unilateral appointment made by one of the Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 44 of 54 OMP (COMM.) No.1/2019 parties to the arbitration. A distinction must be made on the obvious dissimilarity between an arbitrator being hit by any one or all of the conflicted relationships in the 7th schedule and an arbitrator being rendered ineligible simply by reason of being appointed by one of the parties to the dispute. This is entirely different from a party nominating an arbitrator where the test of independence starts with the arbitrator on the multiprong of the 5thand the 7th schedules.
51. Under section 12 (5) of the Act, an arbitrator can be disqualified once his relationship with the parties/counsel/subject matter of the dispute falls under any of the categories specified in the 7 th Schedule only. The proviso to section 12 (5) allows the parties to waive all objections to ineligibility which fall under the 7th Schedule by an express agreement in writing would hence take from and be confined to section 12 (5). Since the Act gives the right to the parties to circumvent any and all relationship-based conflicts which would disqualify an arbitrator under the 7th Schedule, no appointments can be treated as void ab initio or incapable of being cured by an express written agreement.
52. It is evident from the recorded that it is nowhere the case of the petitioners that the arbitrator had any association with the respondent as mentioned in the 7th schedule. During the entire arbitral proceeding or before this court, it is not the Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 45 of 54 OMP (COMM.) No.1/2019 case of the petitioners that the arbitrator had acted in the bias manner while conducting the arbitral proceedings or had not acted independently and impartially. It is not the case of the petitioners that the arbitrator was under the control or influence, direct or indirect, of the respondent. Even this court does not find that the arbitrator conducted the arbitration proceedings or made award in the bias manner. Hence, it can be held that the arbitrator was not suffering from any ineligibility which falls under the 7th schedule and therefore was not disqualified to act as an arbitrator.
53. As held in Mcleod Russel India Limited (supra), the decisions in TRF, Bharat Broadband, Perkins and Jaipur Zila Parishad proceed on the basis of the named arbitrator also serving as the MD/CMD or a Director of one of the parties. These cases involve a person who chose himself to act as the arbitrator and hence was automatically disqualified by the amendments brought to the Act in 2015 and specifically under the 7thSchedule. This person naturally could not appoint a substitute in his or her place since that would be a mere extension of the ineligibility extended by one degree. The Supreme Court therefore, held that the person designated was per se ineligible under the 7th schedule read with section 12 (5) of the Act to act as an arbitrator. The ratio of TRF, Bharat Broadband and Perkins is therefore essentially that of an arbitrator who becomes ineligible by a statutory bar Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 46 of 54 OMP (COMM.) No.1/2019 and consequently renders himself ineligible to nominate someone else to act as the arbitrator.
54. Unilateral appointments being impermissible in law must be read to mean an unilateral appointment made by a person who himself is disqualified to act as an arbitrator under the 7thSchedule and not each and every unilateral appointment made by one of the parties to the arbitration.
55. In the present case, Clause 19 of the agreement provides for a "Sole Arbitrator to be appointed by the respondent". There is no named / designated Arbitrator and the respondent has not claimed a right to act as the arbitrator itself. The respondent has appointed an advocate. Hence, the analogy sought to be drawn between the facts of the present case and those in TRF, Bharat Broadband and Perkins is factually distinguishable since in TRF the MD himself was a sole arbitrator and was disqualified to act as such by reason of the amending Act of 2016. Bharat Broadband and Perkins considered the facts of TRF and the consequent disqualification.
56. As held in the judgment Mcleod Russel India Limited (supra), Perkins judgment was pronounced on an application under section 11 of the Act for appointment of an arbitrator. Facts in Perkins did not involve any express written agreement under the proviso to section 12 (5). Further, the contract between the parties was entered into after the Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 47 of 54 OMP (COMM.) No.1/2019 amendment to the Act but before the decision in TRF (pronounced on 03.07. 2017) where the law was declared on section 12 (5)of the Act. Hence, the parties were not aware of the implications of TRF with regard to automatic disqualification of the MD/CMD of one of the parties to be designated as the arbitrator.
57. Further, as also held in the judgment passed by the Hon'ble Delhi High Court in Kanodia Infratech limited vs. Dalmia Cement (Bharat) Lim- ited reported in 2021 SCC Online Del 4883, in the Perkins judgment, the proceedings related to the ap- pointment of the arbitrator under Section 11(6) of the Act and involved the question once the mandate of the Managing Director to be appointed as an arbitra- tor become ineligible by virtue of the amendment of 2015, he cannot nominate another person as arbitra- tor also. On the contrary, the present petition is un- der Section 34 of the Act which provides the grounds on which an arbitral award can be challenged and set aside and not the mandate of arbitral tribunal. Fur- ther, as discussed above, it is not the case of the peti- tioner that the arbitrator was the employee or associ- ated with or was interested party in favour of the re- spondent or was bias in nature.
58. Further, as held in the judgment Mcleod Russel India Limited (supra), paragraph 21 of Perkins clubs all unilateral appointments by one of the parties to an arbitration as falling within the Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 48 of 54 OMP (COMM.) No.1/2019 statutory bar of section 12 (5) but without reference to the 7th schedule. This would be clear from the reliance placed by the Court on TRF which was specifically a case under section 12 (5) read with the 7thSchedule. Therefore, Perkins amplifies and extends the disqualification under section 12 (5) to all unilateral appointments divorced from any of the categories specified in the 7thSchedule. Perkins also proceeded on the ratio of TRF namely whether the Managing Director, after becoming ineligible by operation, is still eligible to nominate an arbitrator. The absence of any issue with regard to an express written agreement under the proviso to section 12 (5)in Perkins amounts to a crucial difference in facts.
59. Further, as held above, in the present case, the arbitrator does not fall under any of the prohibited relationships/categories in the 7th Schedule. The arbitrator in the present case is neither a manager or a director nor a part of the management of the respondent. The Arbitrator also does not have any controlling influence in the respondent or any of the parties to the arbitration. The Arbitrator is an advocate by profession.
60. The judgment Govind Singh (supra) relied upon by counsel for the petitioners is distinguishable on the facts as in the said case also, the arbitrator was appointed by the Managing Director of the respondent therein.
61. The present case is of a unilateral appointment which is factually distinguishable from Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 49 of 54 OMP (COMM.) No.1/2019 an arbitrator whose eligibility is compromised by any one or more of the entries in the 7thSchedule.
62. In view of the foregoing discussions, it can be held that the arbitrator was not ineligible to act as an arbitrator within the meaning of Section 12(5) read with the 7th Schedule of the Act. Therefore, the arbitrator was not de jure in capable to act as an arbitrator within the meaning of Section 14 of Act.
63. Now the question arises as to whether in the present case, the petitioners had waived their right to challenge appointment of the arbitrator in terms of proviso to section 12 (5) of the Act.
64. In view of the above cited judgments, it can be held that the only way in which the ineligibility mentioned under the 7th schedule can be removed is by the proviso to section 12(5) of the Act. The requirement presumes that the agreement in writing must be made by the party who takes the objection to the appointment of the arbitrator and seeks recourse under section 12 (5). The requirement does not entail both the parties executing a formal agreement since the other party (who has made the appointment) may not raise the issue at all.
65. In the judgment Mcleod Russel India Limited (supra),the Hon'ble Calcutta High Court held:
25. ....................................... The proviso thus reinforces the defining characteristic of an arbitration proceeding where the parties are given the statutory Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 50 of 54 OMP (COMM.) No.1/2019 nod for deciding on the procedure of the arbitration and every other aspect of it. The only caveat is that the agreement should not be by words, conduct or unspoken understandings but fulfill the benchmark of an express promise as defined under section 9 of The Indian Contract Act, 1872. The requirement further presumes that the agreement in writing must be made by the party who takes the objection to the appointment of the arbitrator and seeks recourse under section 12(5). The requirement does not entail both the parties executing a formal agreement since the other party (who has made the appointment) may not raise the issue at all.
The deeming feature of the proviso further presumes that the express written agreement must be made without undue delay.
27. The above dates show that the petitioner's participation in the Arbitration was not a one-off act or a mindless entry into the Arbitrator's jurisdiction; the petitioners made a conscious and deliberate decision to stay on and live with the Arbitration Agreement and the arbitration proceedings from March, 2018 - February, 2020. The petitioners decided to slip out of the arbitration only in 2020 by filing four applications for challenging the appointment of the Arbitrator.
32. The statements contained in pleadings filed by the petitioner before the Arbitrator constitute an express agreement as contemplated under the proviso to section 12(5) of the Act. The statements are distinct from a deemed waiver as contemplated in section 4 of the Act where a party proceeds with the arbitration without Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 51 of 54 OMP (COMM.) No.1/2019 stating his / her objection to the non- compliance of the provisions or the arbitration agreement. The decisions cited hold that the term "express agreement"
must be in the nature of express promise as contemplated in section 9 of The Indian Contract Act, 1872 where the acceptance of any promise made in words is deemed to be expressed while those made otherwise, than in words, is deemed to be implied. One may also draw a parallel to section 7(2)(e) of the Act where exchange of statements of claim and defence and existence of arbitration agreement being alleged by one party and not denied by the other amounts to an arbitration agreement. The petitioner and the respondent no. 1 had exchanged their respective Statement of Claim and Statement of Defence/affidavit in the present proceeding.
66. In the present case, as discussed above, the petitioner's application under order 12 and 13 of the Act was dismissed by the arbitrator on 03.11.2017. Thereafter, the petitioners had filed their WS before the arbitrator. Vide preliminary objection 10 and in para 19 and 23 of reply on merits of the WS, the petitioners though mentioned about section 12 and 13 and the 6th schedule of the Act but had not pleaded any fact to question the appointment of the arbitrator in terms of the 7th schedule of the Act. The petitioners also sought the time to cross examine the respondent's witness and also to lead their evidence in defence on several occasions though they had failed to avail the said opportunities and their right to cross examine CW-1 was closed. On 04.05.2018, the Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 52 of 54 OMP (COMM.) No.1/2019 petitioners filed the affidavit by way of evidence and simultaneously, moved the application under order 18 Rule 17 of the CPC for recalling CW-1 for cross examination. Vide order dated 04.05.2018, the said application was dismissed by the arbitrator. Not only that, the petitioners had addressed the final augments before the arbitrator. In view of the foregoing discussions, it can be held that the petitioners had left no stone unturned to defend themselves in the arbitration proceedings. They also engaged the advocate to defend themselves. It can also be held that the petitioner's participation in the arbitration was not a one-off act or a mindless entry into the arbitrator's jurisdiction; the petitioners made a conscious and deliberate decision to stay on and live with the arbitration agreement and the arbitration proceedings.
67. As discussed above, the proviso allows the parties to the dispute to waive the ineligibility of an arbitrator under the 7th schedule by an express agreement in writing. The proviso hence enables the parties to obliterate any disqualification which an arbitrator may be visited with under the 7thSchedule. In view of the foregoing discussions, it can be held that in the present case, the express and unequivocal written statements made by the petitioners amounts to a waiver. Without doubt, the pleadings and statements made in the petitioner's applications wipe out any objections to the appointment of the sole arbitrator. There was no such unequivocal acceptance Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 53 of 54 OMP (COMM.) No.1/2019 of the arbitration by conduct or otherwise in Perkins. This has a transformational legal bearing on the disputes in the present case. Hence, it can be held that the petitioners had waived their right to challenge appointment of the arbitrator in terms of proviso to section 12 (5) of the Act.
68. Therefore, it can be held that the alleged ineligibility of the appointment of the arbitrator was regularised under the proviso to section 12 (5) by the express written documents executed by the petitioners and their continuous participation in the arbitration. The petitioners continued to participate in the arbitration despite having knowledge of the curable invalidity of the arbitration agreement and being aware of the implication of the judgments pronounced by the Supreme Court in TRF.
69. In view of the foregoing discussions, it is held that the petition is devoid of merits. Accordingly, the petition is dismissed. No order as to cost.
70. File be consigned to the record room.
Digitally signed by PANKAJ PANKAJ GUPTA ANNOUNCED IN THE OPEN COURT, GUPTA Date:
2023.05.06 On this 6th day of May, 2023. 12:49:41 +0530 (PANKAJ GUPTA) District Judge, S/W (Commercial Court)-01:
NEW DELHI Bijender Singh Lather & Ors. Vs. Intec Capital Ltd Page No. 54 of 54 OMP (COMM.) No.1/2019