Punjab-Haryana High Court
Reliance Infrastructure Ltd vs Haryana Power Generation Corp Ltd on 27 October, 2016
Author: S.J. Vazifdar
Bench: S.J. Vazifdar
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
Arbitration Case No.166 of 2016 (O&M)
DATE OF DECISION: 27.10.2016
Reliance Infrastructure Ltd.
.....Petitioner
versus
Haryana Power Generation Corporation Ltd. .....Respondent
CORAM:- HON'BLE MR.JUSTICE S.J. VAZIFDAR, CHIEF JUSTICE
Present: Mr. Akshay Bhan, Senior Advocate with
Mr. Rahul Chitnis, Advocate,
Mr. Vaibhav Mishra, Advocate and
Mr. Jasmeet Singh Bhatia, Advocate for the
petitioner
Mr. Naresh Markanda, Senior Advocate with
Ms. Mavita Markanda, Advocate
Mr. Raghujeet S. Madan, Advocate and
Ms. Sonia Madan, Advocate for the respondent
..
S.J.VAZIFDAR, CHIEF JUSTICE:
This is an application under section 11(5) of the Arbitration and Conciliation Act, 1996, for the appointment of a sole arbitrator.
2. This petition raises important questions of law relating to the provisions of the Act as amended by the Arbitration and Conciliation (Amendment) Act, 2015, and, in particular, sections 11 and 12 thereof.
3. The respondent accepted the petitioner's bid in respect of an engineering, procurement and construction contract in respect of a thermal power plant. Pursuant thereto, the parties entered into a contract dated 30.10.2007 Article 6.1 whereof reads as under:-
"6.1 It is specifically agreed by and between the parties that all the differences or disputes arising 1 of 27 ::: Downloaded on - 14-11-2016 09:35:21 ::: ARB-166-2016 - 2 -
out of the Agreement or touching the subject matter of the of the (sic) agreement shall be decided by process of Settlement of Disputes and Arbitration as referred in Clause No.2.26.0 (2.26.1 to 2.26.5) of General Conditions of Contract to specification."
Clause 2.26.5 reads as under:-
"2.26.0 SETTLEMENT OF DISPUTES/ARBITRATION ...... ..... ..... ...... ...... ...... .......
2.26.5 If amicable settlement cannot be arrived at, the dispute shall be settled by the arbitration of a Sole Arbitrators, to be appointed by the Government of Haryana. The arbitration shall be in accordance with the Arbitration & Reconciliation Act 1996 or any subsequent amendment there of. The venue of arbitration shall be Panchkula and the language of arbitration shall be English. The arbitration shall be subject to jurisdiction of District Court at Panchkula only."
4. Disputes and differences have arisen between the parties which admittedly fall within the ambit of the arbitration agreement. It is not necessary, for the purpose of this application, to refer to the same.
In the course of the correspondence, the petitioner raised certain demands which the respondent rejected. By a letter dated 01.07.2016, the petitioner, inter alia, referred to the contract, the fact that the disputes had arisen between the parties and invoked the arbitration agreement by requesting the respondent to appoint a sole Arbitrator. Mr. Bhan, the learned senior counsel appearing on behalf of the petitioner, relied upon paragraphs 7, 8 and 9 of the letter in which the petitioner expressly invited the respondent's attention to the provisions of the Act and in particular sections 12(3) and (5) and the fifth and seventh Schedules thereto.
5. The Government of Haryana, by an order dated 29.07.2016, appointed one Smt. Promilla Issar, IAS (retired), a former Chief 2 of 27 ::: Downloaded on - 14-11-2016 09:35:23 ::: ARB-166-2016 - 3 -
Secretary of Haryana, as a sole Arbitrator on the terms and conditions contained in the various contract documents. A copy of this order was forwarded to the petitioner and the respondent. The order expressly stated that the said Smt. Promilla Issar, IAS (Retd.) was an "Ex-Chief Secretary, Haryana".
The learned Arbitrator, by a communication dated 08.08.2016, informed the parties of her appointment by the said letter dated 29.07.2016 and fixed the first meeting on 19.08.2016.
6. The petitioner contends that the appointment is non-est being contrary to the Act as amended by the Arbitration and Conciliation (Amendment) Act, 2015. Admittedly, the learned Arbitrator was the Chief Secretary of the State of Haryana from 31.08.2007 to 29.02.2008. It is during this period that the parties entered into the contract dated 30.08.2007. Mr. Markanda, the learned counsel appearing on behalf of the respondent, however, pointed out that the Ex-Chief Secretary was appointed on 31.08.2007, whereas, the work had been awarded in favour of the petitioner seven months prior thereto on 29.01.2007. The formal contract was signed on 30.10.2007.
7. It would be convenient to set out here the provisions of the Act relied upon by both the learned counsel. They read as under:-
"11. Appointment of arbitrators.-- ...... ..... ..... ...... ...... ...... ....... (6) Where, under an appointment procedure agreed upon by the parties,--
(a) a party fails to act as required under that procedure; or 3 of 27 ::: Downloaded on - 14-11-2016 09:35:23 ::: ARB-166-2016 - 4 -
(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 Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
(6A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section(4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.
...... ..... ..... ...... ...... ...... .......
(8) The Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court, before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of section 12, and have due regard to-
(a) any qualifications required for the
arbitrator by the agreement of the
parties; and
(b) the contents of the disclosure and
other considerations as are likely
to secure the appointment of an
independent and impartial
arbitrator.
...... ..... ..... ...... ...... ...... .......
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,--
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(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 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; 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 sub-section (1) unless they have already been informed of them by him.
(3) An arbitrator may be challenged only if--
(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality; or
(b) he does not possess the qualifications agreed to by the parties.
(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.
(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator:
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Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing.
13. Challenge procedure.--(1) Subject to sub- section (4), the parties are free to agree on a procedure for challenging an arbitrator.
(2) Failing any agreement referred to in sub- section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of Section 12, send a written statement of the reasons for the challenge to the arbitral tribunal.
(3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.
(4) If a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award.
(5) Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with Section 34.
(6) Where an arbitral award is set aside on an application made under sub-section (5), the Court may decide as to whether the arbitrator who is challenged is entitled to any fees.
...... ..... ..... ...... ...... ...... ......."
The relevant provisions of the Fifth, Sixth and Seventh Schedule read as under:-
"THE FIFTH SCHEDULE [See section 12(1)(b)] The following grounds give rise to justifiable doubts as to the independence or impartiality of arbitrators:
Arbitrator's relationship with the parties or counsel 6 of 27 ::: Downloaded on - 14-11-2016 09:35:23 ::: ARB-166-2016 - 7 -
1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.
...... ..... ..... ...... ...... ...... .......
THE SIXTH SCHEDULE [See section 12(1)(b)] NAME:
CONTACT DETAILS:
PRIOR EXPERIENCE (INCLUDING EXPERIENCE WITH ARBITRATIONS):
NUMBER OF ONGOING ARBITRATIONS:
CIRCUMSTANCES DISCLOSING ANY PAST OR PRESENT RELATIONSHIP WITH OR INTEREST IN ANY OF THE PARTIES OR IN RELATION TO THE SUBJECT MATTER IN DISPUTE, WHETHER FINANCIAL, BUSINESS, PROFESSIONAL OR OTHER KIND, WHICH IS LIKELY TO GIVE RISE TO JUSTIFIABLE DOUBTS AS TO YOUR INDEPENDENCE OR IMPARTIALITY (LIST OUT):
CIRCUMSTANCES WHICH ARE LIKELY TO AFFECT YOUR ABILITY TO DEVOTE SUFFICIENT TIME TO THE ARBITRATION AND IN PARTICULAR YOUR ABILITY TO FINISH THE ENTIRE ARBITRATION WITHIN TWELVE MONTHS (LIST OUT):
...... ..... ..... ...... ...... ...... .......
THE SEVENTH SCHEDULE [See section 12(5)] Arbitrator's relationship with the parties or counsel
1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party."
8. Mr. Bhan submitted that the appointment of the former Chief Secretary as an arbitrator is void being in violation of section 12(1)(a) read with schedule 6, as the arbitrator failed to file the disclosure. He further submitted that the appointment of the arbitrator is contrary to section 12(5) read with schedule 7, items 1 and 5 and is, therefore, also void. Relying essentially 7 of 27 ::: Downloaded on - 14-11-2016 09:35:23 ::: ARB-166-2016 - 8 -
upon sections 11(8) and 12(1), he submitted that the disclosure must be made before the appointment.
9. Mr. Bhan submitted that section 12(1)(a) is of the widest import. I agree. It is of the widest import in every significant aspect. Firstly, the nature of the relationship, requiring a disclosure, may be direct or even indirect. Secondly, the ambit is not restricted in time - it may be past or present. Thirdly, the nature of the relationship or interest of the arbitrator requiring disclosure is also sufficiently wide. The relationship may be with and the interest may be qua the parties as also qua the subject matter in dispute. Further still, the nature of the relationship may be with or the interest may be in a variety of circumstances - financial, business, professional or other kind.
Also well-founded is Mr. Bhan's submission that the disclosure is contemplated not merely where the circumstances actually impinge upon the independence or impartiality of the arbitrator. Further, the disclosure is not dependent upon the belief of the arbitrator himself. The disclosure must be made if the circumstances are "likely to give rise to justifiable doubts as to his independence or impartiality". In other words, Mr. Bhan submitted that the test is not whether there is actual bias but whether the circumstances in question give rise to a justifiable apprehension of bias. We would put the test a little differently. According to us, the test indeed is not whether there is actual bias but whether, considering the facts and circumstances, a reasonable person is likely to apprehend the possibility of bias. What circumstances would justify such an apprehension in the mind of a reasonable person would depend upon the facts and 8 of 27 ::: Downloaded on - 14-11-2016 09:35:23 ::: ARB-166-2016 - 9 -
circumstances of the case. It is neither possible nor desirable to attempt an enumeration of such circumstances.
10. There is a clear distinction between sub-section (1) and sub-section (5) of section 12. Sub-section (1) of section 12 deals with the requirement of a person to disclose in writing the circumstances which are likely to give rise to justifiable doubts as to the person's independence or impartiality as an arbitrator and 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 12 months. The mere existence of these conditions, illustrations of which are furnished in the Fifth Schedule, does not necessarily result in the disqualification of a person being appointed as an arbitrator. Sub- section (5), on the other hand, stipulates the conditions which render a person ineligible to be appointed as an arbitrator.
11. The facts to be disclosed under sub-section (1) of section 12 do not necessarily render a person ineligible to be appointed an arbitrator. These facts are only to be disclosed. Explanation 1 Provides that the grounds stated in the Fifth Schedule are only a guide to determining whether they are to be disclosed or not. The grounds stated in the Fifth Schedule are, therefore, not exhaustive. Sub-section (5), on the other hand, renders a person ineligible to be appointed an arbitrator if his relationship with the parties or counsel or the subject matter of the dispute falls under any of the categories specified in the Seventh Schedule. If the facts required to be disclosed under sub- section (1) also fall under any of the categories specified in the Seventh Schedule, he would be ineligible to be appointed as an 9 of 27 ::: Downloaded on - 14-11-2016 09:35:23 ::: ARB-166-2016 - 10 -
arbitrator. If, however, the facts disclosed under sub-section (1) do not fall under any of the categories specified in the Seventh Schedule, he would not be rendered ineligible per se. Whether such facts ought to render him ineligible or not would then depend upon the facts of the case. Some of the categories in the Fifth and the Seventh Schedules are the same. In such cases, the person would be ineligible to be appointed an arbitrator in view of sub-section (5). The present case is an illustration where a disclosure was bound to be made under sub-section (1) but the circumstances do not render the Ex-Chief Secretary ineligible to be appointed an arbitrator.
12. In the present case, a disclosure was required to be made by the arbitrator. The requirement is evident from section 12(1)(a) for the arbitrator was a former Chief Secretary of the State of Haryana. A disclosure would be required under section 12(1)(a) for that engagement constituted the existence of a direct past relationship between the arbitrator and the State of Haryana which relationship even if not financial, business or professional would fall within the ambit of the category constituted by the words "other kind". As I will shortly indicate - the disclosure, however, was not necessary in view of the circumstances mentioned in the Fifth Schedule, Item 1. It is necessary for an arbitrator to disclose a relationship past or present as an employee, consultant or advisor. In any event, the relationship between the Chief Secretary and the State, in which the person was appointed as a Chief Secretary, falls within the ambit of the words "other kind"
in section 12(1). I would not read the words "other kind" ejusdem generis. It is not necessary to elaborate upon importance of the position of a Chief Secretary for it is far too obvious and 10 of 27 ::: Downloaded on - 14-11-2016 09:35:23 ::: ARB-166-2016 - 11 -
evident. Suffice it to state that the Chief Secretary of a State is the head of the administrative machinery of the State, has control over the administrative offices of the State and is the main link between the State and the Centre.
13. Absent anything else, in the present case, all that the arbitrator was bound to disclose was that she is a former Chief Secretary of the State of Haryana. Further, as I will soon demonstrate, this does not render her ineligible to be appointed an arbitrator.
The arbitrator as well as the State of Haryana have expressly disclosed that the said Smt. Promilla Issar was a former Chief Secretary of the State of Haryana. This is established by the order of the Government of Haryana dated 29.07.2016 appointing Smt. Promilla Issar as the arbitrator. The order in terms stated that she was the "Ex-Chief Secretary, Haryana". A copy of this letter was, admittedly, forwarded to the petitioner and the respondent. Further, the arbitrator, by her communication dated 08.08.2016, fixing the first meeting in terms, referred to the said order dated 29.07.2016. Thus, the State of Haryana and the arbitrator disclosed the arbitrator's past relationship with the respondent.
14. Mr. Bhan, however, submitted that the arbitrator ought to have disclosed whether or not she had any direct or indirect, past or present interest in relation to the subject matter in dispute. The wording of section 12 does not support the submission to the effect that even if the arbitrator had or has no relation to the subject matter of the dispute he must file a disclosure saying so. In other words, section 12 does not require a declaration in the negative. It does not require the arbitrator to disclose/state 11 of 27 ::: Downloaded on - 14-11-2016 09:35:23 ::: ARB-166-2016 - 12 -
that he or she did not or does not have any relationship with the parties or interest in the subject matter of the dispute. It is only if the circumstances referred to in section 12 exist that a declaration is to be made to that effect with the necessary particulars. If such a disclosure is not made, it must be presumed that the arbitrator denies the existence of the circumstances specified in section 12(1) and (5).
15. I cannot presume at this stage that the Chief Secretary, in fact, had a relationship or an interest in relation to the subject matter of the dispute. Nor has the petitioner produced any evidence to indicate that the circumstances, referred to in section 12, other than the fact that the arbitrator was the Chief Secretary of the State of Haryana, exist.
16. Thus, even assuming that the disclosure was required to be made by the arbitrator at the time of her proposed appointment, the provisions of section 12 have been complied with.
17. Mr. Bhan then submitted that the Seventh Schedule read with section 12(5) mandates that no arbitrator shall have any professional or any other relationship whether past or present with the parties or counsel and that the arbitrator should also not have been an employee, consultant, advisor or have had any other past or present business relationship with a party. He submitted that the words "business relationship" in items 1 of the Fifth and Seventh Schedules must be read in a wide and not a narrow sense. Entry 1 in the Fifth and the Seventh Schedules are identical. Mr. Bhan submitted that the term "business relationship" in section 12 and in item 1 of the Schedules must be construed widely and the engagement of a party as an employee, consultant or advisor falls 12 of 27 ::: Downloaded on - 14-11-2016 09:35:23 ::: ARB-166-2016 - 13 -
within the meaning of the words "business relationship" in view of the words "any other".
18. As I noted earlier, item 1 in the Fifth Schedule is identical to item 1 to the Seventh Schedule. Each of them reads as under:-
"Arbitrator's relationship with the parties or counsel
1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party. ...... ..... ..... ...... ...... ...... ......."
The language of entry 1 indicates a clear division. The bar in section 12(5) is to a person who is an employee, consultant or advisor. In other words, the bar is against a person who is, at the time of appointment, an employee, consultant or advisor of the party concerned. There is no bar against a former employee, consultant or advisor. The words "or has any other past or present business relationship with a party" do not include a former employee, consultant or advisor of the party. I will assume that the word "other" indicates that the engagement of a person as an employee, consultant or advisor constitutes a business relationship within the meaning of entry 1 with the party concerned. The word "other", however, refers to a relationship other than that of an employee, consultant or advisor. Thus, the bar applies in respect of a person who has had a business relation with a party other than as an employee, consultant or advisor. Any other construction would militate against the language of the section. If the intention was to bar even former employees, advisors or consultants, item 1 in both the Schedules would have been worded entirely differently. It would not then have been necessary to employ the opening words "The arbitrator is an employee, consultant, advisor or ..... .....". The 13 of 27 ::: Downloaded on - 14-11-2016 09:35:23 ::: ARB-166-2016 - 14 -
clause makes a clear distinction between an arbitrator who "is" an employee, consultant or advisor and a person who has had any other business relationship past or present with a party. The embargo against a past business relationship does not refer to a relationship of an employee, consultant or advisor.
19. The mere fact that a person was a Chief Secretary or held any other office with the Government, does not disqualify him/her from being appointed as an arbitrator. The contention that former employees are disqualified from being appointed because they receive pension and post-retiral benefits from the Government is irrelevant. These benefits are not conferred upon them as a favour. These are benefits that they are entitled to by right by virtue of their employment/past employment. If they are denied the same otherwise than in accordance with law, they are entitled to adopt proceedings to recover the same. Thus, for instance, if an employee receives a post-retiral benefit conferred subsequently but as a matter of policy to other similarly situated persons, it would make no difference. An employer including the Government does not do its former employees any favour by disbursing post-retiral benefits which they are entitled to in law. If a special favour is extended to a particular employee out of the ordinary course, it may be a different matter altogether. That would depend upon the facts of each case.
I appreciate that an employer does an employee no favour even by paying his salary and other emoluments in respect of a contract of an employment. The Legislature, however, sought to draw a distinction between a past employee and an employee in service. It is probably for good reason for the obligation to pay the retiral dues to a person constitutes an entirely different 14 of 27 ::: Downloaded on - 14-11-2016 09:35:23 ::: ARB-166-2016 - 15 -
relationship between an ex-employee and an employer from an existing relationship of master and servant. The nature of control over an employee in service is entirely different from the nature of relationship between an employer and a former employee. A former employee's retiral dues are specified and crystallized for all time to come. If they are altered in the normal course, it would make no difference either. However, the relationship between an employer and an employee in service is entirely different. In such a case, the employer has, for instance, a right to terminate the services of the employee, to take disciplinary action against him and to grant a promotion. It is probably for these reasons that the Legislature did not think it necessary to bar a former employee from being appointed as an arbitrator.
20. Mr. Bhan submitted that having been a Chief Secretary of the Government of Haryana when the contract was entered into, the arbitrator may have had a role in acting for and on behalf of the Government and that this fact by itself renders her appointment void ab initio, as there are justifiable doubts that connect her even to the subject matter of the dispute/contract.
21. I have already indicated the distinction between sub- section (1) and (2) of section 12 on the one hand and sub-section (5) of section 12 and held that a past employment by itself does not render a person ineligible from being appointed an arbitrator. The mere existence of a doubt justifiable, as it may be, does not render him ineligible either. That is only for the purpose of sub- sections (1) and (2) of section 12 to ascertain further if the arbitrator also had any connection with the contract in question.
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22. There is no bar, therefore, to a former employee, consultant or advisor of a party being appointed as an arbitrator merely by virtue of his/her past engagement.
23. Strictly speaking, it is not even necessary for a person, who is approached in connection with his possible appointment as an arbitrator, to disclose in writing a past employment or engagement as an employee, consultant or advisor unless such employment or engagement is likely to give rise to justifiable doubts as to his independence or impartiality. Once it is held that a mere past employment or engagement as a consultant or advisor does not debar a person from being appointed as an arbitrator, it would follow that such a relationship is not bound to be disclosed unless it is likely to give rise to justifiable doubts as to the person's independence or impartiality as an arbitrator. This is clear by the use of the words "which is likely to give rise". If a past employment or engagement as a consultant or adviser is not likely to give rise to justifiable doubts as to the person's independence or impartiality as an arbitrator, the question of a disclosure does not even arise. Take for instance, a case of a person who joined a large company in a junior post many years ago and left in a very short time. After a passage of many years, he may justifiably believe that that employment of his cannot possibly give rise to a justifiable doubt as to his suitability as an arbitrator where his erstwhile employer is a party.
24. Mr. Bhan further contended that the form of the certificate prescribed in the Sixth Schedule establishes that the 16 of 27 ::: Downloaded on - 14-11-2016 09:35:23 ::: ARB-166-2016 - 17 -
issuance of the certificate is a condition precedent to the acceptance of an appointment as an arbitrator under section 12(1).
The form prescribed in the Sixth Schedule is in conformity with sub-section (1) of section 12 which requires a disclosure of any circumstances "which is likely to give rise to justifiable doubts" as to the arbitrator's independence or impartiality and which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to finish the entire arbitration within 12 months. The form is also in the affirmative and not in the negative. In other words, if, according to the arbitrator, there are no circumstances which are likely to give rise to justifiable doubts about his independence or impartiality or which are likely to affect his ability to devote sufficient time to the arbitration, there is no question of his issuing the certificate in terms of the Sixth Schedule. The Sixth Schedule does not require a certificate in the negative stating that there are no circumstances which are likely to give rise to justifiable doubts about the independence or impartiality of the arbitrator. It cannot be presumed that in addition to Smt. Promilla Issar being an Ex-Chief Secretary of the State of Haryana, there were circumstances which are likely to give rise to justifiable doubts as to her independence or impartiality or as to her ability to devote sufficient time to the arbitration and in particular her ability to finish the entire arbitration within 12 months. If, in fact, there are such circumstances and the disclosure has not been made, the petitioner is always at liberty to challenge her appointment in accordance with the provisions of the Act. The contention, therefore, that the appointment occurs only after the 17 of 27 ::: Downloaded on - 14-11-2016 09:35:23 ::: ARB-166-2016 - 18 -
disclosure has been made assumes that there is something to disclose.
25. In any event, the submission that the appointment occurs only if no objections are found to such disclosure by the parties to the agreement and the appointing authority is not well founded. A view to this effect would delay an arbitration indefinitely which would defeat the very purpose of the Act and arbitrations. The submission, if accepted, would render many, if not most arbitrations, non starters. The validity of an appointment cannot be dependent upon the unilateral act of a party objecting to the same.
26. Mr. Bhan then submitted that in any event a disclosure must be made not after the appointment but, to use the words of sub-section (1) of section 12, "when a person is approached in connection with his possible appointment as an arbitrator". He submitted that a disclosure made thereafter renders the appointment void ab initio. He further submitted that in that event a party is not entitled to exercise a right of nominating an arbitrator.
27. Firstly, as rightly submitted by Mr. Markanda, the disclosure contemplated under section 12(1) is required to be made only to the party nominating the arbitrator. If the arbitration agreement requires a person other than the parties thereto to appoint the arbitrator, the disclosure under section 12(1) must be made by the arbitrator to such person or authority. If it is the parties to the agreement who are to appoint the arbitrator, the disclosure under section 12(1) must be to the party appointing/proposing to appoint him. At this stage, it is not necessary for the disclosure to be made to the other party. The 18 of 27 ::: Downloaded on - 14-11-2016 09:35:23 ::: ARB-166-2016 - 19 -
disclosure is not thereby without any consequence. The disclosure enables the party nominating the arbitrator to decide whether or not he should continue with the nomination or to nominate another arbitrator if he finds that, in view of the facts disclosed, the arbitrator would be ineligible to be appointed in view of the provisions of the Act and, in particular, section 12 thereof.
Indeed, a disclosure would be necessary to all the parties. However, the disclosure to the other parties is necessary only from the time of his appointment as is evident from sub- section (2) of section 12. Sub-section (2) provides that the arbitrator "from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him". It is clear, therefore, that the disclosure to the party, meaning thereby all the parties is required only from the time of the appointment of the arbitrator. The mere nomination of a person as an arbitrator does not lead to or result in his appointment as an arbitrator.
28. The appointment is complete only upon his accepting it. If he is inclined to accept his appointment and circumstances stipulated in section 12(1) read with the Fifth Schedule exist, he must make the disclosure as per the format provided in the Sixth Schedule. A view to the contrary would render sub-section (2) otiose. If the disclosure was to be made at the stage contemplated in sub-section (1), it would have been unnecessary to enact sub- section (2).
29. Even assuming that a disclosure ought to be made to all the parties at the first instance and even prior to the appointment, the failure to do so would not render the appointment 19 of 27 ::: Downloaded on - 14-11-2016 09:35:23 ::: ARB-166-2016 - 20 -
void. So long as the disclosure is made even thereafter, it would be sufficient. A party entitled to nominate an arbitrator cannot be penalised for a default of the person he seeks to nominate as an arbitrator. This view would not prejudice any of the parties in any manner whatsoever. They can always insist upon the disclosure being made prior to the commencement of the arbitration proceedings and challenge the appointment if it is found to be contrary to the provisions of section 12. I notice that in paragraph 10(6) of the written submissions tendered by Mr. Bhan, it is submitted that at the highest it can be said that the appointment of an arbitrator is effective only after the disclosure is made under section 12(1) and subject to any challenge thereto.
30. In the facts of the present case, it cannot be said that the respondent failed to appoint an arbitrator because the arbitrator did not make a disclosure. Firstly, as a matter of fact, the disclosure was, as stated earlier, made in the order of appointment dated 29.07.2016 and in the arbitrator's communication to the parties dated 08.08.2016. Secondly, even assuming it was not made, the respondent could not be said to have failed to have acted as required under the appointment procedure agreed upon by the parties. There must be a failure to act on the part of the party, who is entitled to nominate the arbitrator, either as per the terms of the arbitration agreement or under the Act. Where a person, proposed to be appointed as an arbitrator, fails to make a disclosure, it cannot be said, without anything more, that the party proposing to appoint him has failed to act.
31. Mr. Bhan submitted that under section 11 (8), even the Supreme Court and the High Courts are bound to seek a disclosure in 20 of 27 ::: Downloaded on - 14-11-2016 09:35:23 ::: ARB-166-2016 - 21 -
writing from the prospective arbitrator in terms of section 12 (1) before appointing the arbitrator. An appointment made by the High Court under section 11 is always subject to the provisions of the Act, in particular, sections 11 and 12 thereof. As contended by Mr. Bhan himself, the appointment becomes effective only upon the disclosure being made and would be subject to a successful challenge to the appointment. It would be an implied term of every appointment by the High Court under section 11 that a disclosure is to be made. In other words, the appointment made by the High Court is subject to and, therefore, becomes effective upon the disclosure being made and further subject to any challenge to the appointment. This, of course, is provided a disclosure is required to be made.
32. In any event, an order passed by the High Court under section 11 appointing an arbitrator cannot by any stretch of imagination be deemed to be void even if the disclosure ought to have been obtained prior to the passing of the order. In other words, even if the High Court is bound to seek a disclosure in writing before passing an order under section 11 and does not do so, a party can always have the order reviewed in which event the petition under section 11 would be heard de novo. The parties to the petition cannot, even in such circumstances, be held to have forfeited their right to nominate an arbitrator.
33. The reliance upon an order of the Bombay High Court in Su-kam Power Systems Limited vs. Viom Infra Networks (Maharashtra) Limited, 2016 SCC online Bom 3374, is not well founded. The learned Judge of the Bombay High Court indeed sought a disclosure from the arbitrator he proposed appointing before passing the order. The issue as to whether an order without following such a procedure 21 of 27 ::: Downloaded on - 14-11-2016 09:35:23 ::: ARB-166-2016 - 22 -
would be void was neither raised before the learned Judge nor decided by him.
34. There is nothing to indicate that the respondent failed to appoint the arbitrator. There is nothing to indicate that the appointment is ex-facie bad in law. Mr. Bhan fairly stated more than once that the petitioner does not allege any mala fides whatsoever against the arbitrator but rests its case only on the legal submissions, which I have dealt with.
In the circumstances, if it is found subsequently that the arbitrator was ineligible to be appointed for any reason, the petitioner's remedy to challenge the appointment would be under section 13 or under section 16 and not under section 11.
35. Mr. Markanda's reliance upon the fact that the arbitrator is also acting as an arbitrator in another matter between the same parties is irrelevant. That appointment was prior to the amendment of the Act and, in particular, to sections 11, 12 and 13 thereof. If Mr. Bhan's submissions were well founded, the petitioner would be entitled to succeed irrespective of the fact that the arbitrator is also acting as an arbitrator in another matter.
36. Mr. Markanda rightly did not challenge the maintainability of the petition on the ground that it does not specifically refer to section 11(6) of the Act.
37. The following recommendations of the Law Commission of India - Report No.246 were relied upon by Mr. Akshay Bhan in support of his contentions:-
"NEUTRALITY OF ARBITRATORS 22 of 27 ::: Downloaded on - 14-11-2016 09:35:23 ::: ARB-166-2016 - 23 -
53. It is universally accepted that any quasi- judicial process, including the arbitration process, must be in accordance with principles of natural justice. In the context of arbitration, neutrality of arbitrators, viz. their independence and impartiality, is critical to the entire process.
54. In the Act, the test for neutrality is set out in section 12(3) which provides -
"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.
56. The limits of this provision has been tested in the Indian Supreme Court in the context of contracts with State entities naming particular persons/designations (associated with that entity) as a potential arbitrator. It appears to be settled by a series of decisions of the Supreme Court (See Executive Engineer, Irrigation Division, Puri v. Gangaram Chhapolia, 1984 (3) SCC 627; Secretary to Government Transport Department, Madras v. Munusamy Mudaliar, 1988 (Supp) SCC 651;
International Authority of India v. K.D.Bali and Anr, 1988 (2) SCC 360; S.Rajan v. State of Kerala, 1992 (3) SCC 608; M/s. Indian Drugs & Pharmaceuticals v. M/s. Indo-Swiss Synthetics Germ Manufacturing Co.Ltd., 1996 (1) SCC 54; Union of India v. M.P.Gupta, (2004) 10 SCC 504; Ace Pipeline Contract Pvt. Ltd. v. Bharat Petroleum Corporation Ltd., 2007 (5) SCC 304) that arbitration agreements in government contracts which provide for arbitration by a serving employee of the department, are valid and enforceable. While the Supreme Court, in Indian Oil Corp. Ltd. v. Raja Transport (P) Ltd., 2009 8 SCC 520 carved out a minor exception in situations when the arbitrator "was the controlling or dealing authority in regard to the subject contract or if he is a 23 of 27 ::: Downloaded on - 14-11-2016 09:35:23 ::: ARB-166-2016 - 24 -
direct subordinate (as contrasted from an officer of an inferior rank in some other department) to the officer whose decision is the subject matter of the dispute", and this exception was used by the Supreme Court in Denel Propreitory Ltd. v. Govt. of India, Ministry of Defence, AIR 2012 SC 817 and Bipromasz Bipron Trading SA v. Bharat Electronics Ltd., (2012) 6 SCC 384, to appoint an independent arbitrator under section 11, this is not enough.
57. The balance between procedural fairness and binding nature of these contracts, appears to have been tilted in favour of the latter by the Supreme Court, and the Commission believes the present position of law is far from satisfactory. Since the principles of impartiality and independence cannot be discarded at any stage of the proceedings, specifically at the stage of constitution of the arbitral tribunal, it would be incongruous to say that party autonomy can be exercised in complete disregard of these principles - even if the same has been agreed prior to the disputes having arisen between the parties.
There are certain minimum levels of independence and impartiality that should be required of the arbitral process regardless of the parties' apparent agreement. A sensible law cannot, for instance, permit appointment of an arbitrator who is himself a party to the dispute, or who is employed by (or similarly dependent on) one party, even if this is what the parties agreed. The Commission hastens to add that Mr. PK Malhotra, the ex officio member of the Law Commission suggested having an exception for the State, and allow State parties to appoint employee arbitrators. The Commission is of the opinion that, on this issue, there cannot be any distinction between State and non-State parties. The concept of party autonomy cannot be stretched to a point where it negates the very basis of having impartial and independent adjudicators for resolution of disputes. In fact, when the party appointing an adjudicator is the State, the duty to appoint an impartial and independent adjudicator is that much more onerous - and the right to natural justice cannot be said to have been waived only on the basis of a "prior"
agreement between the parties at the time of 24 of 27 ::: Downloaded on - 14-11-2016 09:35:23 ::: ARB-166-2016 - 25 -
the contract and before arising of the
disputes.
58. Large scale amendments have been suggested to address this fundamental issue of neutrality of arbitrators, which the Commission believes is critical to the functioning of the arbitration process in India. In particular, amendments have been proposed to sections 11, 12 and 14 of the Act.
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 the IBA 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 sub-set 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 25 of 27 ::: Downloaded on - 14-11-2016 09:35:23 ::: ARB-166-2016 - 26 -
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 is to have "due regard" to the contents of such disclosure in appointing the arbitrator."
38. Even assuming that it is open to me to rely upon the recommendations of the Law Commission, it would make no difference for I do not think that they carry the petitioner's case further. The Law Commission, undoubtedly, dealt with the issue of natural justice and fairness in action even regarding the appointment of arbitrators. I do not find any recommendations debarring absolutely former employees of a party. Even if the recommendations did so, in view of what I have already held, the Act does not do so. The Law Commission's disapproval of the judgments of the Supreme Court would make no difference either. In any event, in paragraph 56, the Law Commission has dealt with serving employees and not former employees of the department. Ultimately, it is the Act that must be construed. If the Act is contrary to the recommendations, it is the Act and not the recommendations of the Law Commission that must prevail. I do not find any inconsistency between the recommendations of the Law Commission and the amendments to the Act.
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39. In the circumstances, the petition is dismissed.
Needless to clarify that if it is found later that the said arbitrator suffers from any disqualification, the petitioner would be entitled to adopt appropriate proceedings to challenge her appointment.
Mr. Bhan requested for the stay of the judgment for a period of 8 weeks. The petitioner understandably wishes to challenge this judgment in view of the importance of the various issues involved. I do not think it appropriate to stay the judgment. However, the petitioner is always at liberty to make an application to the learned Arbitrator to fix the date for hearing after 31.12.2016. I am confident that the Arbitrator will consider the same appropriately in the light of the nature of the matter.
27.10.2016 (S.J. VAZIFDAR) parkash* CHIEF JUSTICE
NOTE:- (i) Whether non-speaking/reasoned: Reasoned
(ii) Whether reportable : YES/NO 27 of 27 ::: Downloaded on - 14-11-2016 09:35:23 :::