Gujarat High Court
Pallav Vimalbhai Shah & vs Kalpesh Sumatibhai Shah & 4 on 4 August, 2017
Author: Akil Kureshi
Bench: Akil Kureshi
O/IAAP/15/2017 CAV JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
PETN. UNDER ARBITRATION ACT NO. 15 of 2017
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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PALLAV VIMALBHAI SHAH & 1....Petitioner(s)
Versus
KALPESH SUMATIBHAI SHAH & 4....Respondent(s)
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Appearance:
MR SUNIT SHAH WITH MR NV GANDHI, ADVOCATE for the Petitioner(s) No.
1-2
MR UNMESH SHUKLA WITH MR KUNJAL D PANDYA, ADVOCATE for the
Respondent(s) No. 1 - 5
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
Date : 04/08/2017
CAV JUDGMENT
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1. In this arbitration petition, the petitioners who are parties to an ongoing arbitration proceeding, have questioned the appointment of one Shri Archish Kiritkumar Shah nominated to the Arbitral Tribunal by the respondents. This petition arises in the following factual background.
2. The petitioners herein and the respondents had entered into a partnership agreement dated 24.3.2003 for the purpose of carrying out the business of manufacturing plastic products in the name of M/s. Plastic Products Engg. Co. It is not necessary to dwell at length on other terms and conditions of the said agreement. The only clause of the partnership agreement of our interest is the arbitration clause which provided as under :
"18. All disputes and questions whatsoever which shall arise during the continuance of the Partnership or thereafter between the partners or their respective representatives concerning this indenture or the construction or application thereof or any clause or thing therein contained on any account, valuation, division or assets, debts and liabilities to be made hereunder or to any other affairs thereof or the rights duties or liabilities of any person hereunder agree upon one or if not to two Arbitrator/s to be appointed by the parties to the dispute of difference in accordance with and subject to the provisions of Indian Arbitration Act of 1940 or any other subsisting statutory modifications, thereof or substituted encasement thereof."
3. Multiple disputes arose between the partners of the said firm splitting them into two groups. The present petitioners comprised one group and the respondents the other. To resolve such disputes, the respondents issued a notice Page 2 of 39 HC-NIC Page 2 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT dated 1.10.2010 activating the arbitration clause by appointing one Shri Dinesh P. Shah, a Chartered Accountant, as their nominee to the Arbitral Tribunal. By a reply dated 4.11.2010, the petitioners raised multiple issues but eventually without prejudice to such disputes, nominated one Shri S. Ruparel, a Chartered Accountant, as their nominee to the Arbitral Tribunal. It appears that for some reason, Shri S. Ruparel was unable to continue to act as an arbitrator and, therefore, was substituted by Shri Sakar Sharma, a Chartered Accountant, by the petitioners. These arbitrators could not agree to the choice of the Presiding Arbitrator. The respondents therefore, filed Arbitration Petition No.56/2010 in which by an order dated 28.1.2011, Shri M.S. Parikh, former Judge of the High Court, was appointed as the Presiding Arbitrator.
4. Shri Dinesh P. Shah, the arbitrator nominated by the respondents communicated vide letter dated 25.11.2016 that he was retiring as an arbitrator on health grounds. Subsequently, Shri Dinesh P. Shah passed away. The respondents therefore, under letter dated 13.12.2016 nominated Shri Archish Kiritkumar Shah as an arbitrator to complete the Arbitral Tribunal. They conveyed to the existing arbitrators and the petitioners as under :
"Dear Sirs, In view of the resignation of Mr. Dinesh P. Shah, chartered accountant, an arbitrator, and also his subsequent death, it has become necessary for my client to appoint a substitute arbitrator in place of late Mr. Dinesh P. Shah.
Shri Archish Kiritkumar Shah Page 3 of 39 HC-NIC Page 3 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT 44, Jain Society, Ellisbridge, Ahmedabad 380 006.
Telephone No: 07926579900 email [email protected] In view of reconstitution of the arbitral tribunal, that a fresh meeting of the new arbitral tribunal may be convened."
5. In response to such communication, the petitioners on 26.12.2016 wrote to the arbitrators and the advocate of the respondents, in which they referred to the amended provisions of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act of 1996") and contended that the proposed arbitrator before his appointment would have to make a necessary declaration in writing of no direct or indirect, past or present relationship with the parties or the subject matter of the arbitration. In the present case, no such declaration was received.
6. Yet another letter was written on 27.12.2016 by the petitioners reiterating that in absence of any declaration from the proposed arbitrator, his appointment was not valid and since no substitute arbitrator was appointed by the respondents within 30 days of date of resignation by Shri Dinesh P. Shah, it was only within the purview of High Court under section 11 of the Act of 1996, to make the appointment of arbitrator.
7. On 4.1.2017, the respondents wrote to the petitioners and Page 4 of 39 HC-NIC Page 4 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT to the arbitrators replying to the petitioners' letters dated 26.12.2016 and 27.12.2016. In such letter, they once again asserted their right to make appointment in substitution of Shri Dinesh P. Shah who had resigned and later on died. It was contended that such appointment was made under communication dated 13.12.2016 which was well within 30 days from the date of resignation by Shri Dinesh P. Shah on 25.11.2016. Regarding the requirement of making a declaration by the arbitrator, it was conveyed as under :
"My clients also deny that the learned Arbitrator nominated by them is required to make a declaration in writing about his direct or indirect relationship with any of the parties, either financially, professionally or in business or otherwise. My clients deny that any such declaration is necessary either at the time of appointment of the substitute arbitrator or subsequently."
The respondents further took the stand that the Arbitral Tribunal stands reconstituted by the appointment of such substitute arbitrator.
8. On 28.12.2016, the Presiding Arbitrator called a meeting of the arbitration for the following purpose :
"This has reference to communication dated 25.11.2016 received from CoArbitrator Shri Dinesh P. Shah, who later passed away, communication dated 13.12.2016 received from the claimants' ld. Advocate informing that claimant appointed Shri Archish Kiritkumar Shah (C.A.) as the Co Arbitrator in place of late Shri Dinesh P. Shah and communication dated 26.12.2016 received from the respondent Shri Pallav V. Shah claiming claimants' right to Page 5 of 39 HC-NIC Page 5 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT appoint the coArbitrator having been forfeited.
A meeting is, therefore, required to be convened for considering aforesaid communications and further proceedings of the present arbitration. Accordingly, the meeting is convened on 19.1.2017 at 5.30 p.m. At the venue to be booked from the side of the claimants."
9. In response to such communication, the petitioners wrote to the arbitrator on 5.1.2017 conveying as under :
"Admittedly Late Dinesh P Shah withdraw as an Arbitrator on account of ill health vide communication dated 25.11.2016. We received a communication dated 13.12.2016 from Kunjal Pandya, Advocate of the Claimants, that his Client has appointed Mr Archish Kiritkumar Shah. However we have not received any communication from Shri Archish Kiritkumar Shah that he has accepted the appointment and has file declaration. We so far, not received any communication from your goodself no 1 & 2 that Mr Archish Kiritkumar Shah has accepted appointment and he has filed a declaration. In that view of the matter he can not be recognize as an Arbitrator at this stage. You will appreciate that two Arbitrators can not take decision; it is for the Court alone to decide whether right to appointment of Arbitrator is forfeited. In view of the above you are requested to cancel the meeting of two Arbitrators. It is submitted that section 14 can come into play after appointment and not before that. If you have any legal query please communicate to us so that we can response to the same"
10. At that stage, this arbitration petition came to be filed.
11. During the course of these proceedings, it has come Page 6 of 39 HC-NIC Page 6 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT on record that the proposed arbitrator was a partner of one M/s. Perfect Pack situated at Vatva, Ahmedabad. The wife of respondent no.1 Kalpesh Sumatibhai Shah and his brother Kaushal Sumatibhai Shah were the partners of the said firm effective from 1.1.1987. Brother of respondent no.1 retired from the said partnership firm with effect from 31.12.1987 and his wife retired as a partner with effect from 31.3.1995.
12. In brief, the case of the petitioners is that appointment of substitute arbitrator in place of Shri Dinesh P. Shah had to be made after following proper procedure provided under section 12 of the Act of 1996 amended by The Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as "the Amending Act of 2015"). According to the petitioners, it was mandatory upon the proposed arbitrator to make a declaration disclosing his connection or interest with the parties to the arbitration or the subject matter of arbitration. In absence of any such declaration, this appointment made by the respondents was invalid. Since no such appointment was made within 30 days from the date of resignation by Shri Dinesh P. Shah, the respondents had forfeited their right to make such appointment. They contend that in view of past business relations of the proposed arbitrator Shri Archish Kiritkumar Shah with the family members of the respondents, he could not be expected to be impartial.
13. On the other hand, case of the respondents is that the arbitration proceedings having commenced before the introduction of the Amending Act of 2015, unamended Page 7 of 39 HC-NIC Page 7 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT section 12 of the Act of 1996, would apply. There was no need for the proposed arbitrator to make any declaration. His appointment was made within 30 days from the resignation by Shri Dinesh P. Shah. The arbitrator so appointed has no connection or interest with the parties to the arbitration or the subject matter of the dispute. There is thus no possibility of any bias. In any case, any dispute as to the impartiality of an arbitrator can be raised only before the Tribunal.
14. Based on the abovenoted facts, learned advocate Shri Sunit Shah for the petitioners raised the following contentions :
i) Section 12 of the Act of 1996 even prior to amendment by virtue of the Amending Act of 2015 contained sufficient safeguards to disqualify any person with past business dealings with any of the parties to the arbitration to act as an arbitrator.
ii) Amended section 12 is more specific and requires a declaration of any circumstances likely to give rise to justifiable doubts as to independence or impartiality of the proposed arbitrator. Amended provisions of section 12 would apply in the present case because
(a) the same is clarificatory in nature and would therefore, apply to all pending proceedings;
(b) by virtue of section 26 of the Amending Act of 2015, such amendment is applicable to all pending proceedings;Page 8 of 39
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(c) appointment of a substitute arbitrator is being made at this stage after the amendment of section 12.
iii) Counsel further contended that appointment of Shri Archish Kiritkumar Shah without necessary declaration was invalid. The respondents thus did not appoint a substitute arbitrator within 30 days from the date of resignation of Shri Dinesh P. Shah. They have therefore, forfeited their right to make such appointment. In terms of section 11 of the Act of 1996, now the same can be made only by the High Court.
iv) In support of his contentions, learned advocate Shri Sunit Shah placed heavy reliance on Report No.246 of the Law Commission of India, suggesting amendments to the Arbitration and Conciliation Act, 1996, in which while suggesting amendment to section 12 of the Act of 1996, considerable stress has been placed on the requirement of neutrality of the arbitrator.
15. Counsel placed reliance on the following decisions :
i) In case of Shyam Sunder and others v. Ram Kumar and another reported in (2001) 8 Supreme Court Cases 24, to contend that the amended section 12 of the Amending Act of 2015 would have retrospective applicability. Reliance in this regard was also placed on the decision in case of Rendezvous Sports World and ors. v. The Board of Control for Cricket in India and others reported in MANU MH 2637 2016.Page 9 of 39
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ii) Reliance was placed on the decision of Delhi High Court in case of Raffles Design International India Private Limited & another v. Educomp Professional Education Limited and others reported in 2016 (234) DLT 349 wherein while considering the applicability of the amended provisions of the Amending Act of 2015, it was observed that even in cases where there is no provision that the new law is to be applied retrospectively, the Courts would nonetheless apply the same if it is fair to do so and if it furthers the intention of the legislature.
iii) Reliance was also placed on the decision in case of Madhava HytechRani (JV) v. Ircon International Limited reported in 2016 SCC OnLine Del 6326, to which I would refer to at length at a later stage.
16. On the other hand, learned advocate Shri Shukla for the respondents opposed the petition contending that :
i) Amendments to the Act of 1996 by virtue of the Amending Act of 2015, do not apply in the present case since the arbitration proceedings had commenced long before such amendments were introduced.
ii) Any challenge to the impartiality of the arbitrator has to be raised only before the Arbitral Tribunal in terms of sections 12 and 13 of the Act of 1996.
iii) The concept of de jure or de facto, inability of an arbitrator to perform his functions as envisaged in section Page 10 of 39 HC-NIC Page 10 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT 14 of the Act of 1996, would not apply in the present case because
(a) the same can be agitated only before the Arbitral Tribunal;
(b) in any case, the same has to be raised before a Court in terms of subsection(2) of section 14 of the Act of 1996 which would mean only the Civil Court and;
(c) no circumstances exist raising any doubts about the impartiality of the arbitrator.
17. Following decisions were cited by the learned advocate Shri Shukla in support of his contentions :
i) Counsel placed reliance on the decision in case of Ascending Engineering Contractors v. Elecon EPC Projects Limited, judgment dated 19.8.2016 in Petn.
Under Arbitration Act No. 23 of 2016, in which it was held that unless the parties otherwise agree, the amendments of the Amending Act of 2015 would apply only to arbitration proceedings which commenced after the introduction of such amendments.
ii) In case of Progressive Career Academy Pvt. Ltd. v. FIIT JEE ltd. reported in ILR (2011) IV Delhi 286, it was observed that apart from the challenges enumerated in section 13(4) of the Act, an assault on the independence or impartiality of the Arbitral Tribunal is permissible by way of filing objections on this aspect after publication of the Page 11 of 39 HC-NIC Page 11 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT award.
iii) In case of Hasmukhlal H. Doshi and another v. M.L. Pendse, retired Chief Justice, Karnataka High Court and others reported in 2000 (3) Mh.L.J. 690, the learned Single Judge of Bombay High Court observed that when an arbitrator is challenged on the ground that circumstances exist which give rise to justifiable doubts as to his independence or impartiality, the procedure envisaged under sections 12 and 13 of the Act should be followed and it would be open for the High Court to terminate the mandate under section 14 of the Act.
iv) Madras High Court in case of Chennai Metro Rail Limited represented by its Chief General Manager (Construction), Mr. V. Somasundaram v. M/s. Lanco Infratech Limited, represented by its General Manager Mr. D.Ramesh and Ors. reported in 2014(2) ARBLR 341 (Madras), was considering the challenge to appointment of an arbitrator. The preliminary objection of the respondent was that once the appointment is made, same can be challenged only before the Arbitration Tribunal in terms of section 13(2) of the Act and petition under sections 14 and 15 would not be maintainable. In this background, the Court held that if the case is simply a challenge to the very appointment of an arbitrator on the grounds available under section 12(3), then the remedy of the petitioner is only under section 13(2) of the Act but if the prayer for termination of mandate in terms of section 14(1)(a) is made, then the remedy is only under section 14(2) of the Act. Whatever be the view of the Court, it may be noticed Page 12 of 39 HC-NIC Page 12 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT that the case arose before the amendment of the Arbitration Act by virtue of the Amending Act of 2015.
18. As is well known the Arbitration and Conciliation Act, 1996, underwent major changes by virtue of the Arbitration and Conciliation (Amendment) Act, 2015. Section 12 of the Act prior to its amendment by virtue of the Amending Act of 2015 provided as under :
"12. Grounds for challenge. (1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality.
(2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in subsection (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."
19. After amendment by virtue of the Amending Act of Page 13 of 39 HC-NIC Page 13 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT 2015, section 12 reads as under :
"12. Grounds for challenge.--[(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances,--
(a) such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subjectmatter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and
(b) which are likely to affect 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 subsection (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 Page 14 of 39 HC-NIC Page 14 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT
(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.
[(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subjectmatter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator:
Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub section by an express agreement in writing.]"
20. Section 21 of the Act of 1996 pertains to commencement of arbitral proceedings and reads as under :
"21. Commencement of arbitral proceedings Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent."
21. Section 26 of the Amending Act of 2015 reads as under :
"Section 26 Act not to apply to pending arbitral proceedings: Nothing contained in this Act shall apply to the arbitral proceedings commenced,in accordance with the provisions of section 21 of the principal Act, before the commencement of this Act unless the parties otherwise Page 15 of 39 HC-NIC Page 15 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act."
22. The main issues to be decided in this petition would be whether in view of section 26 of the Amending Act of 2015, amended section 12 of the Act of 1996 would apply in the present case or unamended section 12 of the Act of 1996 would continue to have applicability? It would also be necessary to examine the changes brought by virtue of amendments in section 12 of the Act. Based on the answers to these questions, the repercussions to the procedure for challenging the impartiality of the arbitrator shall have to be judged.
23. The question of applicability of amended provisions of the Amending Act of 2015 came up for consideration before this Court in case of Ascending Engineering Contractors (supra), in which it was held and observed as under:
"10. In terms of Section 21 of the Act of 1996, therefore, unless parties otherwise agree, the arbitral proceedings in respect of particular dispute would commence on the date on which a request for that dispute to be referred to the arbitration is received by the respondent. Admittedly, in the present case, there is nothing to suggest that the parties had agreed otherwise. In terms of Section 21 of the Act of 1996, therefore, arbitral proceedings commenced upon the respondent receiving the petitioner's notice for arbitration dated 22.5.2015. Thus, long before the Amendment Act of 2015 was brought into effect, in terms of Section 21 of the Act of 1996, the arbitral proceedings had commenced.Page 16 of 39
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11. Section 26 of the Amendment Act, 2015, is divided principally in two parts. First part provides that nothing contained in the said Amending Act would apply to arbitral proceedings commenced before the commencement of the said Act unless parties otherwise agree. This part also specifies as to when the arbitral proceedings would commence. Keeping the question of arbitral proceedings in terms of Section 21 of the Act of 1996 aside for the time being, as per first part of Section 26, nothing contained in the Amending Act of 2015 would apply to the arbitral proceedings which have commenced before the commencement of the Act unless parties agree otherwise. The second part of Section 26 goes on to state that the said Act would, however, apply in relation to arbitral proceedings commenced on or after the date of commencement of the Amending Act. In plain terms, therefore, unless parties otherwise agree the Amending Act of 2015 would not apply to arbitral proceedings which have already commenced in terms of Section 21 of the Act, 1996 before the commencement of the Amending Act. The later portion of Section 26 ensures two things. Firstly, it supplies emphasis that the Amending Act would apply in relation to arbitral proceedings commenced on or after the date of commencement of the Act. Secondly, the choice of the parties to agree otherwise which is available in the first part of Section 26 is no longer available in a case where the arbitral proceedings have commenced on or after the date of commencement of the Amending Act of 2015.
12. Similar view was adopted by the Chief Justice of Madras High Court in a case of Jumbo Bags Ltd. V/s. The New India Assurance Co. Ltd. made in Original Petition No.657 of 2015 decided on 10.03.2016 in which it is observed as under:
21. In the aforesaid context, what becomes relevant is as to what is meant by the commencement of the arbitral proceedings. Section 21 makes it abundantly Page 17 of 39 HC-NIC Page 17 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT clear that commencement of the arbitral proceedings is the date on which the request for disputes to be referred to arbitration is received by the respondent.
The law in this behalf is quite explicit in view of the observations in Milk Food Ltd. V/s. GMC Ice Cream Pvt.Ltd. Cited supra, distinguishing the two expressions commencement of an arbitration proceedings and commencement of proceedings before an Arbitrator. In this context, there is no quibble over the date of the petitioner herein invoking the arbitration clause, i.e. on 7.7.2015 and the reply of the respondent on 15.7.2015. In fact, the original petition was admitted and notice issued prior to the amendment of the Act. Thus, ex facie, these amended provisions would not come into play in the present case.
22. The endeavour of the petitioner to make a distinction between the two expressions in the context of whether the arbitration is with or without the intervention of the court and relying upon the minority view is of little help. In my view, what is most relevant is that Section 21 of the Principal Act leaves little to doubt that the arbitral proceedings would commence on the date of receipt of the request for arbitration, which date had already passed and thus, Section 26 introduced by the amended Act equally clearly stipulated that nothing contained in the amended Act would have force of law for such arbitration which have already commenced, unless the parties otherwise agree.
13. Learned counsel for the petitioner, however, strenuously urged that the parties had agreed to abide by the amended provisions of the Act of 1996. In this context, he relied on the decision of the Hon'ble Supreme Court in case of Thyssen Stahlunion Gmbh V/s. Steel Authority of India Ltd. reported in (1999) 9 SCC 334 in which the Page 18 of 39 HC-NIC Page 18 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT parties had agreed to abide by the law for the time being in force. In the context of the repeal of the Arbitration and Conciliation Act, 1940 and replacement by the said Act of 1996, the question arose, whether the said expression would include being governed by the Act of 1996? In this context, the Supreme Court observed that the interpretation of the expression for the time being in force would mean that the provisions of the Act would apply to arbitration proceedings which were in force at the time when the arbitration proceedings are held. It was held that nothing would prevent the parties to agree to be governed by the new provisions. The Supreme Court taking aid of the expression unless otherwise agree held that the parties had agreed to be governed by the new Act.
14. In the present case, however, I do not find any expression in the entire agreement under which the parties expressed their intention to be governed by the law for the time being in force. The arbitration and jurisdiction clauses have been reproduced. The arbitration clause provides that after attempting to resolve the disputes amicably by referring them to Chief Managing Director (CMD) of the respondentCompany, if either party is dissatisfied with the decision of the CMD that the disputes would be referred to the arbitration in accordance with the Arbitration and Conciliation Act, 1996. The jurisdiction clause provides that the laws applicable to the contract shall be the laws in force in India. The Court at Anand shall have exclusive jurisdiction in all matters arising under the contract. Neither of these two clauses thus express any intention of the parties which would suggest agreement to the contrary as referred in Section 26 of the Amending Act of 2015. In other words, the arbitration clause or the jurisdiction clause does not convey any intention of the parties to agree to abide by the amendment of Amending Act of 2015 irrespective of the provisions contained in Section 26 thereof."
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24. Thus as observed in the decision in case of Ascending Engineering Contractors (supra), unless the parties otherwise agree, the Amending Act of 2015 would not apply to arbitration proceedings which have already commenced before the commencement of the Amending Act of 2015. It would therefore, be necessary to refer to the arbitration agreements between the parties to decide whether they had agreed to the applicability of the Amending Act of 2015.
25. We may recall, in terms of the arbitration clause in the partnership agreement, the partners had decided that all disputes and questions arising during the continuance of the partnership between the partners or their respective representatives of any nature whatsoever, shall be resolved by the arbitrators to be appointed by the parties to the dispute "in accordance with and subject to the provisions of Indian Arbitration Act of 1940 or any other subsisting statutory modifications, thereof or substituted encasement thereof."
26. This agreement between the parties to resolve the disputes in accordance with the provisions of Indian Arbitration Act of 1940 or any other subsisting statutory modifications thereof or substituted enactment thereof is of significance. The parties agreed that the arbitration proceedings should be conducted in accordance with the provisions contained in the Indian Arbitration Act of 1940 which would include subsisting statutory modifications in the said Act or substituted enactments thereof. In plain terms, therefore, the parties agreed to abide by the relevant Page 20 of 39 HC-NIC Page 20 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT statutory provisions and enactments, as may be applicable from time to time. Thus the intention of the parties was to be covered by the law of arbitration as may be updated by any statutory enactment or amendments in existing enactment. Section 26 of the Amending Act of 2015 would therefore, make all amendments of the Amending Act of 2015 applicable to the present arbitration proceedings even though the proceedings themselves may have commenced prior to introduction of the Amending Act of 2015.
27. In case of Thyssen Stahlunion GMBH v. Steel Authority of India Ltd reported in AIR 1999 Supreme Court 3923, the contract between the parties provided that the contract shall be governed and construed in accordance with law in India for the time being in force. The contract also had an arbitration clause as dispute resolution mechanism. Disputes and differences between the parties arose and, therefore, arbitration proceedings commenced on September 14, 1995 when the Arbitration Act 1940 was in force. The same was repealed with introduction of Arbitration and Conciliation Act 1996 with effect from 25.11.1996. The arbitral award was passed on 24.9.1997. The question of enforcement of such award under Arbitration and Conciliation Act, 1996 arose in such factual background. In this context, interpreting the expression "for the time being in force", the Supreme Court held and observed as under :
"44. Parties can agree to the applicability of the new Act even before the new Act comes into force and when the old Act is still holding the field. There is nothing in the language of Section 85(2)(a) which bars the parties from Page 21 of 39 HC-NIC Page 21 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT so agreeing. There is, however, a bar that they cannot agree to the applicability of the old Act after the new Act has come into force when arbitral proceedings under the old Act have not commenced though the arbitral agreement was under the old Act. Arbitration clause in the contract in the case of Rani Constructions (Civil Appeal 61 of 1999) uses the expression "for the time being in force"
meaning thereby that provision of that Act would apply to the arbitration proceedings which will be in force at the relevant time when arbitration proceedings are held. We have been referred to two decisions one of Bombay High Court and the other of Madhya Pradesh High Court on the interpretation of the expression "for the time being in force" and we agree with them that the expression aforementioned not only refers to the law in force at the time the arbitration agreement was entered into but also to any law that may be in force for the conduct of arbitration proceedings, which would also include the enforcement of the award as well. Expression "unless otherwise agreed" as appearing in Section 85(2)(a) of the new Act would clearly apply in the case of Rani Construction in Civil Appeal No. 61 of 1999. Parties were clear in their minds that it would be the old Act or any statutory modification or reenactment of that Act which would govern the arbitration. We accept the submission of the appellant Rani Construction that parties could anticipate that the new enactment may come into operation at the time the disputes arise. We have seen Section 28 of the Contract Act. It is difficult for us to comprehend that arbitration agreement could be said to be in restraint of legal proceedings. There is no substance in the submission of respondent that parties could not have agreed to the application of the new Act till they knew the provisions thereof and that would mean that any such agreement as mentioned in the arbitration clause could be entered into only after the new Act had come into force. When the agreement uses the expressions "unless otherwise agreed" and "law in force" it does give option to Page 22 of 39 HC-NIC Page 22 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT the parties to agree that new Act would apply to the pending arbitration proceedings. That agreement can be entered into even before the new Act comes into force and it cannot be said that agreement has to be entered into only after coming into force of the new Act.
45. Mr. Desai had referred to a decision of the Bombay High Court (Goa Bench), rendered by single Judge in Reshma Constructions v. State of Goa, (1999) 1 MLJ 462. In that case arbitration clause in the contract provided as under :
"Subject as aforesaid, the provisions of the Arbitration Act, 1940 or any statutory modification or re enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceeding under this clause."
46. The Court held that these terms in the clause disclosed that the parties had agreed to be governed by the law which was in force at the time of execution of the arbitration agreement as well as by any further statutory changes that may be brought about in such law. This is how the High Court considered the issue before it :
"Considering the scheme of the Act, harmonious reading of the said provision contained in subsection (2) of Sec. 85 thereof would disclose that the reference "otherwise agreed" necessarily refers to the intention of the parties as regards the procedure to be followed in the matter of arbitration proceedings and not to the time factor as regards execution of the agreements. It provides that though the law provides that the provisions of the old Act would continue to apply to the pending proceedings by virtue of the said saving clause in Sec. 85, it simultaneously provides that the parties can agree to the contrary. Such a provision leaving it to the discretion of the parties to the proceedings to decide about the procedure to be followed other in terms of the new Act or the old Act is certainly in consonance with the scheme of the Act, whereunder most of the provisions of the new Act, Page 23 of 39 HC-NIC Page 23 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT the procedure regarding various stages of the arbitration proceedings is made subject to the agreement to the contrary between the parties, thereby giving ample freedom to the parties to decide about the procedure to be followed in such proceedings; being so, it is but natural that the legislature in its wisdom has left it to the option of the parties in the pending proceedings to choose the procedure for such pending proceedings. The reference "otherwise agreed by the parties" in Sec. 85(2)(c) of the new Act, therefore, would include an agreement already entered into between the parties even prior to enforcement of the new Act as also the agreement entered into after enforcement of the new Act. Such a conclusion is but natural since the expression "otherwise agreed" do not refer to the time factor but refers to the intention of the parties regarding applicability of the provisions of the new or old Act."
We agree with the High Court on interpretation put to the arbitration clause in the contract.
47. Section 28 of the Contract Act contains provision regarding agreements in the restraint of legal proceedings. Exception 1 to Section 28 of the Contract Act does not render illegal a contract by which the parties agree that any future dispute shall be referred to arbitration. That being so parties can also agree that the provisions of the arbitration law existing at that time would apply to the arbitral proceedings. It is not necessary for the parties to know what law will be in force at the time of the conduct of arbitration proceedings. They can always agree that provisions that are in force at the relevant time would apply. In this view of the matter, if the parties have agreed that at the relevant time provisions of law as existing at that time would apply, there cannot be any objection to that. Thus construing the clause 25, in Rani Constructions (CA 61/99) new Act will apply."
28. Similar issue came up before the learned Single Page 24 of 39 HC-NIC Page 24 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT Judge of Delhi High Court in case of Madhava Hytech Rani (JV) v. Ircon International Limited reported in 2016 SCC OnLine Del 6326. The arbitration clause contained in the agreement between the parties provided as under :
72.2.5 The Conciliation and/or Arbitration proceedings shall be governed by the provisions of the Indian Arbitration and Conciliation Act 1996 or any statutory modification or re enactment thereof and the rules made thereunder and for the time being in force shall apply to the conciliation and arbitration proceedings under this clause."
In view of such arbitration agreement in context of the question of applying the amended section 12 of the Arbitration and Conciliation (Amendment) Act, 2015 , the Court observed as under :
"11. The next issue to be addressed is whether the amendments introduced by the Amendment Act would be applicable in this case. Admittedly, the arbitration clause was invoked by Madhava prior to 23.10.2015 the date on which the Amendment Act came into force; therefore, by virtue of Section 26 of the Amendment Act, the amendments to the Act would not be applicable to the arbitral proceedings in this case, unless the parties had agreed otherwise. Section 26 of the Amendment Act is relevant and is set out below: "26. Act not to apply to pending arbitral proceedings. Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral Page 25 of 39 HC-NIC Page 25 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT proceedings commenced on or after the date of commencement of this Act."
12. Having stated the above, it is relevant to observe that in the present case, the parties had specifically agreed that the arbitration proceedings would be governed by the Act or any statutory modification or any re enactment thereof. Thus, the present case falls within the exception as provided under Section 26 of the Amendment Act as the parties have expressly agreed that any statutory modification to the Act would be applicable. Therefore, the Amendment Act would apply to the arbitral proceedings in this case."
29. The issue could be looked from a slightly different angle also. In the present case, the arbitration had commenced prior to the introduction of the Amending Act of 2015. However, the substitute arbitrator was being appointed after the introduction of the Amending Act of 2015. It would be incongruent to continue to apply the provisions of the unamended Act to the new appointment which is made after the Amending Act is already come into force. The amendments made in section 12 of the Act place great emphasis on impartiality and neutrality of the arbitrator. It is inconceivable that the legislature intended that new appointments of arbitrators or substitute arbitrators could be made ignoring or in defiance of such statutory requirements.
30. We may recall prior to the 2015 amendments, sub section(1) of section 12 required a person who is approached in connection with his possible appointment as an arbitrator, to disclose in writing any circumstances Page 26 of 39 HC-NIC Page 26 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT likely to give rise to justifiable doubts as to his independence or impartiality. Under subsection(2) of section 12, an arbitrator, from the time of his appointment and throughout the arbitral proceedings, would disclose to the parties in writing the circumstances referred to in sub section (1) unless they have already been informed earlier. Subsection(3) of section 12 provided that an arbitrator may be challenged only on two grounds. Clause (a) which is of importance to us pertained to existence of circumstances that gives rise to justifiable doubts as to independence or impartiality of an arbitrator. As per sub section (4) of section 12, 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. In other words, if the party has consciously waived any such possible disqualification, he cannot later on challenge the appointment of the arbitrator.
31. The 246th report of the Law Commission of India which was the basis for series of amendments in the Act of 1996, discusses at length, the purpose for making the significant changes in section 12 of the Act. The main purpose being to achieve neutrality of the arbitrators. It was felt that the fundamental issue of neutrality of the arbitrator is critical to the functioning of the arbitration process in India. The requirement of specific disclosures by the arbitrator at the stage of his possible appointment, regarding existence of any relationship or interest of any kind which is likely to give rise to justifiable doubts, was proposed. While doing so, it was also felt that there was a Page 27 of 39 HC-NIC Page 27 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT need to protect real and genuine party autonomy and therefore, in certain situations, the parties should be allowed to waive even the categories of ineligibility as set forth in the proposed Schedule. Example was given of family arbitrations or other arbitrations where a particular person may command full faith and trust of the parties to the dispute, despite the existence of justifiable doubts about his independence and impartiality. To deal with such situations, the Commission had proposed provisio to sub section(5) of section 12, whereby subsequent to disputes having arisen between them, parties may waive the applicability of subsection (5) by an express agreement in writing.
32. With these objectives in mind, Section 12 of the Act of 1996 underwent material changes by way of the Amending Act of 2015. Subsection(1) of section 12 with its clauses
(a) and (b) while retaining the same philosophy of the unamended section 12, of the proposed arbitrator disclosing in writing any circumstances which is likely to give rise to justifiable doubts as to his independence or impartiality, made such circumstances more explicit, such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subjectmatter of dispute, whether financial, business, professional or any other kind. The two explanations to subsection(1) of section 12 made the issue of existence of such circumstances more elaborate. Explanation 1 provides that the grounds provided in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as Page 28 of 39 HC-NIC Page 28 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT to the independence or impartiality of an arbitrator. The Fifth Schedule contains various grounds which would give rise to justifiable doubts as to the independence or impartiality of the arbitrators and includes arbitrator's relationship with the parties or counsel, relationship of the arbitrator to the dispute, arbitrator's direct or indirect interest in the dispute, etc. Explanation 2 provides that the disclosure shall be made by the proposed arbitrator in the form specified in the Sixth Schedule. The Sixth Schedule provides a format in which any person who is approached for appointment of an arbitrator, would make a declaration interalia disclosing the circumstances of any past or present relationship with or interest in any of the parties or in relation to the subject matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality.
33. Subsections (3) and (4) of section 12 have not undergone any changes. Subsection(5) has been inserted in section 12 to introduce the concept of ineligibility of a person to be appointed as an arbitrator. This would be notwithstanding any prior agreement between the parties and would comprise of categories specified in Seventh Schedule. While doing so, as observed by the Law Commission of India in its 246th report, to respect party autonomy, a proviso to subsection(5) has been enacted providing that subsequent to arising of the disputes, the parties may waive the applicability of such requirement by an express agreement in writing.
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34. Comparison of section 12 before and after its amendment makes two things clear. First thing is that, even before this amendment, section 12 contained a requirement of disclosure by a person, who is approached in connection with his possible appointment as an arbitrator, of any circumstances likely to give rise to justifiable doubts as to his independence or impartiality and his position as an arbitrator could be challenged if circumstances exist that give rise to justifiable doubts as to his independence or impartiality. The second thing is that post amendment, section 12 retained this basic characteristic of unamended section 12 namely, of requirement of disclosing any circumstances which are likely to give rise to justifiable doubts as to independence and impartiality of an arbitrator and challenge to the appointment of an arbitrator, if circumstances exist that give rise to justifiable doubts as to his independence or impartiality. The amended section 12 however, brought in certain significant changes as well. Firstly, it made the circumstances giving rise to justifiable doubts more explicit by providing examples such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to the independence or impartiality of an arbitrator. While determining whether circumstances exist giving rise to justifiable doubts, the Fifth Schedule would provide as a guide. The Sixth Schedule provides a format of declaration to be made by the proposed arbitrator. Sub section(5) of Section 12 brings in the concept of ineligibility Page 30 of 39 HC-NIC Page 30 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT of person falling in specified categories to act as an arbitrator.
35. Section 12 thus recognises two categories of inhibition of a person to be appointed as an arbitrator in context of his independence or impartiality. First category is, where circumstances exist that give rise to justifiable doubts as to his independence or impartiality. While determining existence of such circumstances, the grounds stated in the Fifth Schedule would operate as a guide. Sub section(4) of section 12 would indicate that any objection on this count can be waived by a party since it limits the right of the party to challenge the appointment of an arbitrator whether appointed by him or in whose appointment, he has participated, only for reasons of which he becomes aware after the appointment has been made. In other words, if the party who has appointed an arbitrator or in whose appointment he has participated, despite full knowledge of existence of circumstances which give rise to justifiable doubts as to his independence or impartiality, he would be precluded from challenging the appointment. In contrast to this position, subsection(5) of section 12 recognises the category of cases specified in the Seventh Schedule where the person would be ineligible to be appointed as an arbitrator and this would be, notwithstanding any prior agreement to the contrary. Proviso to subsection(5) however, leaves a small window to disregard the disqualification specified in the Seventh Schedule if subsequent to the disputes having arisen between the parties, they waive the applicability of the said subsection by an expressed agreement in writing. Sub Page 31 of 39 HC-NIC Page 31 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT section(5) of section 12 thus in context of the appointment of an arbitrator who is otherwise ineligible as specified in the Seventh Schedule, severely restricts party autonomy. Thus even if the parties had in the prior agreement agreed to the same, such ineligibility of the person to be appointed as an arbitrator would attach. Through the proviso to sub section(5), party autonomy has been saved to a limited extent when subsequent to disputes having arisen, the parties decide to waive the applicability of subsection(5). This could however be done only by an expressed agreement and that too in writing.
36. In context of such provisions contained in section 12 of the Act, the requirement of disclosure in terms of the Sixth Schedule assumes significance. We have noticed that even as per the unamended subsection(1) of section 12, a person who was approached with his possible appointment as an arbitrator, had to disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality. In the amended form, subsection(1) of section 12 makes this requirement more elaborate and more definitive. As per Explanation 2, such disclosure has to be made in the form specified in Sixth Schedule. It can thus be seen that the requirement of this disclosure is of considerable importance. Unless the person who is approached for his possible appointment as an arbitrator, makes necessary disclosure of any circumstances which may give rise to justifiable doubts as to his independence or impartiality, it would not be possible for the parties to the arbitral proceedings to evaluate this position and decide for themselves whether Page 32 of 39 HC-NIC Page 32 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT on account of such circumstances, he should be ineligible for appointment. If even after disclosure of existence of such circumstances, the parties consciously appoint or participate in appointment of a person as an arbitrator, the statute prevents the person concerned from challenging such appointment.
37. As observed by the Supreme Court in a recent judgment in case of Voestalpine Schienen Gmbh v. Delhi Metro Rail Corporation Limited reported in (2017) 4 Supreme Court Cases 665, the three main principles of the Arbitration law are (i) speedy, inexpensive and fair trial by an impartial tribunal; (ii) party autonomy; and (iii) minimum Court intervention. Law Commission of India in its 246th report placed considerable importance on impartiality of an arbitrator "to address this fundamental issue of neutrality of arbitrators which the Commission believes is critical to the functioning of arbitration process in India." The Commission in this context observed as under :
"59. The Commission has proposed the requirement of having specific disclosures by the arbitrator, at the stage of his possible appointment, regarding existence of any relationship or interest of any kind which is likely to give rise to justifiable doubts. The Commission has proposed the incorporation of the Fourth Schedule, which has drawn from the Red and Orange lists of the IBA Guidelines on Conflicts of Interest in International Arbitration, and which would be treated as a guide to determine whether circumstances exist which give rise to such justifiable doubts. On the other hand, in terms of the proposed section 12(5) of the Act and the Fifth Schedule which incorporates the categories from the Red list of th IBA Page 33 of 39 HC-NIC Page 33 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT Guidelines (as above), the person proposed to be appointed as an arbitrator shall be ineligible to be so appointed, notwithstanding any prior agreement to the contrary. In the event such an ineligible person is purported to be appointed as an arbitrator, he shall be de jure deemed to be unable to perform his functions, in terms of the proposed explanation to section 14. Therefore, while the disclosure is required with respect to a broader list of categories (as set out in the Fourth Schedule, and as based on the Red and Orange lists of the IBA Guidelines), the ineligibility to be appointed as an arbitrator (and the consequent de jure inability to so act) follows from a smaller and more serious subset of situations (as set out in the Fifth Schedule and as based on the Red list of the IBA guidelines ).
60. The Commission however, feels that real and genuine party autonomy must be respected, and in certain situations, parties should be allowed to waive even the categories of ineligibility as set in the proposed Fifth Schedule. This could be in situations of family arbitrations or other arbitrations where a person commands the blind faith and trust of the parties to the dispute, despite the existence of objective "justifiable doubts" regarding his independence and impartiality. To deal with such situations, the Commission has proposed the proviso to section 12(5), where parties may, subsequent to disputes having arisen between them, waive the applicability of the proposed section 12(5) by an express agreement in writing. In all other cases, the general rule in the proposed section 12(5) must be followed. In the event the High Court is approached in connection with appointment of an arbitrator, the Commission has proposed seeking the disclosure in terms of section 12(1) and in which context the High Court or the designate in terms of section 12(1) and in which context the High Court or the designate to have "due regard" to the contents of such disclosure in appointing the arbitrator."Page 34 of 39
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38. In this context, the necessity of disclosure envisaged in subsection(1) of section 12 becomes important. Only when such a disclosure is made, that the parties can judge for themselves, if circumstances exist to give justifiable doubts as to the impartiality of an arbitrator. Upon disclosure being made any one of the following situations may arise. First is, where the parties may agree that no such circumstances giving rise to justifiable doubts as to the impartiality of the arbitrator exist or the parties may despite such circumstances existing, go ahead and appoint him as an arbitrator or in face of disagreement between the parties on this issue, one of them, as per the procedure envisaged in the arbitration clause, may proceed to appoint such a person as an arbitrator. Whatever be the fall out, it cannot be denied that disclosure of existence of any circumstance likely to give rise to justifiable doubts as to independence or impartiality of an arbitrator, would be of great importance. Not making any disclosure even though such circumstances exist, would render the appointment of an arbitrator without following the mandatory procedure. This is not to suggest that even though no such circumstances exist, mere failure to make a disclosure or in a format different from that provided in the Sixth Schedule by itself would be fatal to the appointment of the arbitrator. This is also not to suggest that if a party objecting to appointment of arbitrator is aware about existence of such circumstances before the appointment is made, he could challenge the same at a later time on the ground that disclosure was not made. Such a situation would be clearly covered by subsection (3) of section 12.
Page 35 of 39HC-NIC Page 35 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT This is only to suggest that if circumstances exist and disclosure is not made, appointment of an arbitrator would be wholly nonest. In such a situation a party making appointment of an arbitrator without following such mandatory procedure cannot, by referring to section 13 of the Amending Act, drive the opponent to challenge his appointment before the Arbitration Tribunal itself and if such a challenge before the Tribunal was unsuccessful, to submit to the jurisdiction of the Arbitral Tribunal and to challenge the award in accordance with section 34 inter alia on the ground of incompetence of the arbitrator.
39. In view of such provisions, the person who the respondents desired to substitute Shri Dinesh P. Shah as an arbitrator, was required to make a declaration of any past or present relationship with any of the parties to the arbitral proceedings. It is undisputed position that the arbitrator was the partner of the partnership firm M/s. Perfect Pack; the wife of respondent no.1 Kalpesh Sumatibhai Shah and his brother Kaushal Sumatibhai Shah were the partners of the said firm and remained so from 1.1.1987 till 31.3.1995 and 31.12.1987 respectively. Admittedly, no such declaration was made till the writing of the letter dated 13.12.2016 under which the respondents appointed Shri Archish Kiritkumar Shah as an arbitrator. Even when the petitioners objected to such unilateral appointment without declaration and demanded declaration, the said arbitrator made no such declaration. The respondents contended that no such declaration was necessary. The appointment of Shri Archish Kiritkumar Shah as a substitute arbitrator therefore, was in total Page 36 of 39 HC-NIC Page 36 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT violation of the procedure laid down under the amended section 12 of the Arbitration Act. His appointment was therefore, invalid and ineffective. This is therefore, not a case where an arbitrator is challenged on the ground of circumstances existing that give rise to justifiable doubts as to his independence or impartiality. This is a case where the appointment of an arbitrator is held to be invalid and ineffective.
40. For the same reason, neither section 13 nor section 14 of the Act of 1996, would apply in the present case. Broadly, section 13 envisages that the parties are free to agree on a procedure for challenging an arbitrator. In absence of any such agreement, the party intending to challenge the arbitrator, has to, within the stipulated time, approach the Tribunal itself and it is the Tribunal who has to judge on the validity of such objections. Section 14 of the Act of 1996, on the other hand, pertains to failure or impossibility of an arbitrator to act as such. Section 13 of the Act embodies the principle of party autonomy and minimum Court intervention in arbitral proceedings. Under subsection(1) of section 13, parties are free to agree on a procedure for challenging an arbitrator. Failing such agreement the parties challenging the arbitrator would have to raise such a challenge before the Arbitral Tribunal itself and if such challenge is not accepted, the issue could be raised in an application for setting aside the arbitral award. This provision however, do not encompass a case where the appointment of an arbitrator is nonest and invalid for want of following mandatory procedure before appointment is made. Case on hand is also not covered by Page 37 of 39 HC-NIC Page 37 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT clause(a) subsection(1) of section 14 where by the mandate of an arbitrator would terminate if he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay. Here is a case where from inception the appointment of an arbitrator was invalid.
41. When the original arbitrator Shri Dinesh P. Shah withdrew from the arbitration for personal reasons, in terms of section 15 of the Act, the respondents had the right to appoint a substitute arbitrator. However, they did not make any such valid appointment within 30 days from the date of resignation. Subsection(2) of section 15 envisages that where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed in accordance with the Rules that are applicable to the appointment of the arbitrator being replaced. Sub section(6) of section 11 of the Act of 1996 reads as under :
"(6) Where, under an appointment procedure agreed upon by the parties,
(a) A party fails to act as required under that procedure; or
(b) The parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
(c) A person, including an institution, fails to perform any function entrusted to him or it under that procedure, A party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment Page 38 of 39 HC-NIC Page 38 of 39 Created On Sat Aug 12 00:18:20 IST 2017 O/IAAP/15/2017 CAV JUDGMENT procedure provides other means for securing the appointment."
42. In terms of clause (a) of subsection(6) of section 11, the respondents having failed to act as required under the procedure agreed for appointment of arbitrator, the petitioner was justified in moving the Court for such appointment. Considering the nature of disputes and the procedure for appointment of arbitrator envisaged in the agreement, it would be better to appoint an arbitrator in consultation with the learned advocates, particularly, that of the respondents.
43. For such purpose, the petition be notified on 1182017.
(AKIL KURESHI, J.) raghu Page 39 of 39 HC-NIC Page 39 of 39 Created On Sat Aug 12 00:18:20 IST 2017