Himachal Pradesh High Court
M/S Jalpa Mata Hp Center vs Hindustan Petroleum Corporation ... on 1 October, 2018
Author: Sandeep Sharma
Bench: Sandeep Sharma
IN THE HIGH COURT OF HIMACHAL PRADESH AT SHIMLA
Arb. Case No. 70 of 2018
.
alongwith Arb. Cases No. 72, 73, 79 to 85
and 89 to 91 of 2018
Decided on: October 1, 2018
_____________________________________________________________
1. Arb. Case No.70 of 2018
M/s Jalpa Mata HP Center ...Petitioner
Versus
Hindustan Petroleum Corporation Limited and others
...Respondents
2. Arb. Case No.72 of 2018
M/s Amar Service Station, Chandigarh ...Petitioner
Versus
Hindustan Petroleum Corporation Limited and others
r ...Respondents
3. Arb. Case No.73 of 2018
Harpreet Singh Sabharwal ...Petitioner
Versus
Hindustan Petroleum Corporation Limited and others
...Respondents
4. Arb. Case No.79 of 2018
M/s Sharma Oil Carrier ...Petitioner
Versus
Hindustan Petroleum Corporation Limited and others
...Respondents
5. Arb. Case No.80 of 2018
Shree Balaji Filling Station ...Petitioner
Versus
Hindustan Petroleum Corporation Limited and others
...Respondents
6. Arb. Case No.81 of 2018
M/s Nirmal Pitamber HP Centre ...Petitioner
Versus
Hindustan Petroleum Corporation Limited and others
...Respondents
7. Arb. Case No.82 of 2018
M/s Paunta HP Centre ...Petitioner
Versus
Hindustan Petroleum Corporation Limited and others
...Respondents
8. Arb. Case No.83 of 2018
M/s Mohan Singh & Sons ...Petitioner
::: Downloaded on - 06/10/2018 22:56:38 :::HCHP
2
Versus
Hindustan Petroleum Corporation Limited and others
...Respondents
.
9. Arb. Case No.84 of 2018
M/s Puri HP Centre ...Petitioner
Versus
Hindustan Petroleum Corporation Limited and others
...Respondents
10. Arb. Case No.85 of 2018
M/s Snowline Filling Station ...Petitioner
Versus
Hindustan Petroleum Corporation Limited and others
...Respondents
11. Arb. Case No.89 of 2018
M/s Hans Raj HP Centre ...Petitioner
r Versus
Hindustan Petroleum Corporation Limited and others
...Respondents
12. Arb. Case No.90 of 2018
M/s Saheed Raj Kumar Filling Station ...Petitioner
Versus
Hindustan Petroleum Corporation Limited and others
...Respondents
13. Arb. Case No.91 of 2018
M/s Amit Oil Carrier ...Petitioner
Versus
Hindustan Petroleum Corporation Limited and others
...Respondents
_____________________________________________________________
Coram:
Hon'ble Mr. Justice Sandeep Sharma, Judge.
_____________________________________________________________
Whether approved for reporting? 1 Yes.
_____________________________________________________________
For the Petitioner(s) : Mr. Suneet Goel, Advocate, in Arb.
Cases No. 70, 72 and 73 of 2018.
Mr. Yashveer Singh Rathore,
Advocate, in Arb. Cases No. 79 to 82
of 2018.
1
Whether reporters of the local papers may be allowed to see the judgment?
::: Downloaded on - 06/10/2018 22:56:38 :::HCHP
3
Mr. Rajiv Rai, Advocate, in Arb.
Cases No. 83 to 85 and 89 to 91 of
2018.
.
For the Respondents : Mr. B.C. Negi, Senior Advocate with
Mr. Pranay Pratap Singh, Advocate,
in all the petitions.
_____________________________________________________________
Sandeep Sharma, Judge (oral)
Instant arbitration cases have been filed with similar relief and against same respondents, as such, with the consent of the learned counsel representing the parties, same were taken up together and are being disposed of by this common judgment.
2. By way of present petitions filed under Section 9 of the Arbitration & Conciliation Act, 1996 as amended upto date, prayer has been made on behalf of the petitioner(s) for grant of interim directions to the extent that execution and operation of orders of recovery and blacklisting their Companies, may be stayed. Aforesaid prayer has been made on behalf of the petitioners on the ground that since steps are being taken by them for appointment of arbitrator in terms of arbitration Clause 18 contained in the agreement entered into inter se parties, and as such, in the interregnum, respondents may be restrained from executing impugned orders, as has been taken note herein above. Detail of the orders impugned by way of present set of cases is as follows:
::: Downloaded on - 06/10/2018 22:56:38 :::HCHP 4 Sr. Arb. Title Date of Amount of
No. Case impugned recovery
No. order/annexure
1. 70 of M/s Jalpa Mata 22.8.2018 11,83,517
.
2018 HP Center (Annexure P-6)
2. 72 of M/s Amar Service 20.8.2018 59,42,094
2018 Station, (Annexure P-6)
Chandigarh
3. 73 of Harpreet Singh 22.8.2018 11,14,839
2018 Sabharwal (Annexure P-5)
4. 79 of M/s Sharma Oil 22.8.2018 12,46,438
2018 Carrier (Annexure P-6)
5. 80 of Shree Balaji 16.8.2018 3,63,353
2018 Filling Station (Annexure P-6)
6. 81 of 16.8.2018 8,48,672
M/s Nirmal
2018 Pitamber HP (Annexure P-6)
Centre
7. 82 of M/s Paunta 16.8.2018 3,87,502
2018 HP Centre (Annexure P-6)
8. 83 of
r M/s Mohan 16.8.2018 10,63,923
2018 Singh & Sons (Annexure P-8)
9. 84 of M/s Puri HP 16.8.2018 11,05,775
2018 Centre (Annexure P-8)
10. 85 of M/s Snowline 21.9.2018 14,44,925
2018 Filling Station (Annexure P-6) &
22.8.2018
(Annexure P-10)
11. 89 of M/s Hans Raj 20.8.2018 10.82,107
2018 HP Centre (Annexure P-7)
12. 90 of M/s Saheed 10.9.2018 11,31,529
2018 Raj Kumar (Annexure P-7)
Filling Station
13. 91 of M/s Amit Oil 16.8.2018 26,88,644
2018 Carrier (Annexure P-8)
3. Clause 18 of the agreement reads as under:
"18. Arbitration All disputes and differences of whatsoever nature, whether existing or which shall at any time arise between the Parties hereto touching or concerning the agreement, meaning, operation or effect thereof or to the rights and liabilities of the Parties or arising out of or in relation thereto whether during or after completion of the contract or whether before after determination, foreclosure, termination or breach of the agreement (other than those in respect of which the decision of any person is, by the ::: Downloaded on - 06/10/2018 22:56:38 :::HCHP 5 contract, expressed to be final and binding) shall, after written notice by either Party to the agreement to the other of them and .
to the Appointing Authority hereinafter mentioned, be referred for adjudication to the Sole Arbitrator to be appointed as hereinafter provided.
The appointing authority shall either herself act as the Sole Arbitrator or nominate some officer/retired officer of Hindustan Petroleum Corporation Limited (referred to as owner or HPCL) or a retired officer of any other Government Company in the Oil Sector of the rank of Ch. Manager & above or any retired officer of the Central Government not below the rank of a Director, to act as the Sole Arbitrator to adjudicate the disputes and differences between the Parties. The contractor/vendor shall not be entitled to raise any objection to the appointment of such person as the Sole Arbitrator on the ground that the said person is/was an officer and/or shareholder of the owner, another Govt.
Company or the Central Government or that he/she has to deal or had dealt with the matter to which the contract relates or that in the course of his/her duties, he/she has/had expressed views on all or any of the matters in dispute or difference. In the event of the Arbitrator to whom the matter is referred to, does not accept the appointment, or is unable or unwilling to act or resigns or vacates his office for any reasons whatsoever, the Appointing Authority aforesaid, shall nominate another person as aforesaid, to act as the Sole Arbitrator. Such another person nominated as the Sole Arbitrator shall be entitled to proceed with the arbitration from the stage at which it was left by his predecessor. It is expressly agreed between the Parties that no person other than the Appointing Authority or a person nominated by the Appointing Authority as aforesaid, shall act as an Arbitrator. The failure on the part of the Appointing Authority to make an appointment on time shall only give rise to a right to a Contractor to get such an appointment made and not to have any other person appointed as the Sole Arbitrator. The Award of the Sole ::: Downloaded on - 06/10/2018 22:56:38 :::HCHP 6 Arbitrator shall be final and binding on the Parties to the Agreement. The work under the Contract shall, however, .
continue during the Arbitration proceedings, except in case of termination and no payment due or payable to the concerned Party shall be withheld (except to the extent disputed) on account of initiation, commencement or pendency of such proceedings.
The Arbitrator may give a composite or separate Award(s) in respect of each dispute or difference referred to him and may also make interim award(s) if necessary. The fees of the Arbitrator and expenses of arbitration, if any, shall be borne equally by the Parties unless the Sole Arbitrator otherwise directs in his award with reasons. The lumpsum fees of the Arbitrator shall be Rs. 70,000/- per case for transportation contracts.
Reasonable actual expenses for stenographer, etc. will be reimbursed. Fees shall be paid stagewise i.e. 25% on acceptance, 25% on completion of pleadings/documentation and balance 50% on receipt of award of the arbitrator. Subject to the aforesaid, the provisions of the Arbitration and Conciliation Act, 1996 or any statutory modification or re-enactment thereof and the rules made thereunder, shall apply to the Arbitration proceedings under this Clause. The Contract shall be governed by and constructed according to the laws in force in India. The Parties hereby submit to the exclusive jurisdiction of the Courts situated at Mumbai for all purposes. The Arbitration shall be held at Mumbai and conducted in English language. The Appointing Authority is the Functional Director of Hindustan Petroleum Corporation Limited."
4. Pursuant to notice issued by this Court, respondents have filed their reply in Arb. Case No. 70 of 2018, perusal thereof clearly suggests that Clause 18 of the ::: Downloaded on - 06/10/2018 22:56:38 :::HCHP 7 agreement entered into inter se parties provides for arbitration in the event of dispute inter se parties.
.
5. Mr. B.C. Negi, learned Senior Advocate, on instructions of Mr. Gopal Dass, Chief General Manager, Hindustan Petroleum Corporation Limited, who is present in the court, states that the respondents are not averse, rather under obligation to appoint an arbitrator in terms of Clause 18 of the agreement, for adjudication of the dispute. He further states that bare perusal of order dated 9.1.2018 passed by Division Bench of this court, in CWP No. 301 of 2017 and other connected matters, clearly suggests that the Division Bench, while restraining respondents from taking any coercive action in the shape of recovery of amount, had categorically directed the petitioner to file undertaking in the form of affidavit stating therein that in the event of writ petition being dismissed, it shall deposit the amount which stands adjudicated by the authorities within two weeks of the respondents having taken action against them, and as such, they may be asked to deposit the amount.
6. Mr. Suneet Goel, learned counsel representing the petitioner, while refuting aforesaid contention of Mr. B.C. Negi, learned Senior Advocate, invited attention of this Court to the judgment dated 9.7.2018 passed by the Hon'ble Division Bench of this Court in CWP No. 170 of 2017 titled M/s Shri ::: Downloaded on - 06/10/2018 22:56:39 :::HCHP 8 Balaji Filling Station versus Union of India & others, and other connected matters, to demonstrate that the court, while .
passing final order/judgment dated 9.7.2018 categorically concluded that each one of the writ petitioners shall be bound by the undertaking furnished in this court in terms of order dated 9.1.2018 (supra), however, same shall be subject to petitioner's taking recourse to such remedies as would be otherwise available to it in accordance with law. Mr. Goel, contended that since interim order dated 9.1.2018, whereby petitioner was directed to file affidavit, has merged into final judgment rendered by the Division Bench of this court, contention having been raised by Mr.Negi, learned Senior Advocate has no force and deserves to be rejected.
7. I have heard the learned counsel for the parties and gone through the record carefully.
8. Since parties are in agreement that dispute, if any, inter se parties is required to be adjudicated upon by the Arbitrator in terms of Clause 18 of the agreement executed inter se parties, petitions at hand, can be disposed of at this stage. As far as contention of Mr. Negi, learned Senior Advocate that the petitioners are under obligation to deposit the amount in terms of order dated 9.1.2018 is concerned, this court having carefully perused judgment dated 9.7.2018 (supra) is of the view that order dated 9.1.2018 has merged ::: Downloaded on - 06/10/2018 22:56:39 :::HCHP 9 into judgment, wherein the Division Bench has categorically held that each one of the writ petitioners shall be bound by its .
undertaking furnished to this court in terms of order dated 9.1.2018, however, same shall be subject to petitioners' taking recourse to such remedies as would otherwise be available to it, in accordance with law. Now, since the petitioners have taken recourse to alternative remedy available to them, i.e. invocation of arbitration Clause 18 of the agreement, which enables them to invoke arbitration proceedings for adjudication of the dispute, petitioners are not under obligation to deposit amount, if any, at this stage. Leaving everything aside, question, if any, with regard to deposit, if any, in terms of order dated 9.1.2018, can be left open to be decided by the arbitrator, while deciding prayer, if any, made by petitioners, for grant of interim relief.
9. Before proceeding further, it may be noticed that the power has been delegated to this Court by the Hon'ble Chief Justice for appointment of arbitrators and as such joint prayer having been made by the parties for appointment of arbitrator can be considered by this court in the instant proceedings, especially when both the parties have jointly prayed for the appointment of an arbitrator.
10. Another question, which needs to be adjudicated at this stage is whether this court can appoint an arbitrator of ::: Downloaded on - 06/10/2018 22:56:39 :::HCHP 10 its own, ignoring the stipulation contained in Clause 18 (supra) of the agreement which provides that the appointing .
authority shall either herself act as the Sole Arbitrator or nominate some officer/retired officer of Hindustan Petroleum Corporation Limited (referred to as owner or HPCL) or a retired officer of any other Government Company in the Oil Sector of the rank of Ch. Manager & above or any retired officer of the Central Government not below the rank of a Director, to act as the Sole Arbitrator to adjudicate the disputes and differences between the Parties. As per the agreement(s), the contractor(s)/vendor(s) shall not be entitled to raise any objection to the appointment of such person as the Sole Arbitrator on the ground that the said person is/was an officer and/or shareholder of the owner, another Govt. Company or the Central Government or that he/she has to deal or had dealt with the matter to which the contract relates or that in the course of his/her duties, he/she has/had expressed views on all or any of the matters in dispute or difference.
11. Aforesaid question has duly been answered by the Hon'ble Apex Court in Volestalpine Schienen GMBH v. Delhi Metro Rail Corporation Ltd., (2017) 4 SCC 665, wherein it has been held as under:-
"14. From the stand taken by the respective parties and noted above, it becomes clear that the moot question is as to whether panel of arbitrators prepared by the Respondent violates the amended provisions of Section 12 of the Act.::: Downloaded on - 06/10/2018 22:56:39 :::HCHP 11
Subsection (1) and Sub-section (5) of Section 12 as well as Seventh Schedule to the Act which are relevant for our purposes, may be reproduced below:
8. (i) for sub-section (1), the following Sub-section shall .
be substituted, namely (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 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 r 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.;
(ii) after Sub-section (4), the following Subsection shall be inserted, namely--
(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator:
Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this Sub-section by an express agreement in writing. (emphasis supplied) THE SEVENTH SCHEDULE 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.
2. The arbitrator currently represents or advises one of the parties or an affiliate of one of the parties.::: Downloaded on - 06/10/2018 22:56:39 :::HCHP 12
3. The arbitrator currently represents the lawyer or law firm acting as counsel for one of the parties.
4. The arbitrator is a lawyer in the same law firm which is representing one of the parties.
.
5. The arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration.
6. The arbitrator's law firm had a previous but terminated involvement in the case without the arbitrator being involved himself or herself.
7. The arbitrator's law firm currently has a significant commercial relationship with one of the parties or an affiliate of one of the parties.
8. The arbitrator regularly advises the appointing party or an affiliate of the appointing party even though neither the arbitrator nor his or her firm derives a significant financial income therefrom.
9. The arbitrator has a close family relationship with one of the parties and in the case of companies with the persons in the management and controlling the company.
10. A close family member of the arbitrator has a significant financial interest in one of the parties or an affiliate of one of the parties.
11. The arbitrator is a legal representative of an entity that is a party in the arbitration.
12. The arbitrator is a manager, director or part of the management, or has a similar controlling influence in one of the parties.
13. The arbitrator has a significant financial interest in one of the parties or the outcome of the case.
14. The arbitrator regularly advises the appointing party or an affiliate of the appointing party, and the arbitrator or his or her firm derives a significant financial income therefrom. Relationship of the arbitrator to the dispute
15. The arbitrator has given legal advice or provided an expert opinion on the dispute to a party or an affiliate of one of the parties.
16. The arbitrator has previous involvement in the case. Arbitrator's direct or indirect interest in the dispute.
17. The arbitrator holds shares, either directly or indirectly, in one of the parties or an affiliate of one of the parties that is privately held.
18. A close family member of the arbitrator has a significant financial interest in the outcome of the dispute.
19. The arbitrator or a close family member of the arbitrator has a close relationship with a third party ::: Downloaded on - 06/10/2018 22:56:39 :::HCHP 13 who may be liable to recourse on the part of the unsuccessful party in the dispute.
Explanation 1.---The term "close family member" refers .
to a spouse, sibling, child, parent or life partner.
Explanation 2.--The term "affiliate" encompasses all companies in one group of companies including the parent company.
Explanation 3.--For the removal of doubts, it is clarified that it may be the practice in certain specific kinds of arbitration, such as maritime or commodities arbitration, to draw arbitrators from a small, specialized pool. If in such fields it is the custom and practice for parties frequently to appoint the same arbitrator in different cases, this is a relevant fact to be taken into account while applying the Rules set out above. (emphasis supplied)
15. It is a well known fact that the Arbitration and Conciliation Act, 1996 was enacted to consolidate and amend the law relating to domestic arbitration, inter alia, commercial arbitration and enforcement of foreign arbitral awards etc. It is also an accepted position that while enacting the said Act, basic structure of UNCITRAL Model Law was kept in mind. This became necessary in the wake of globalization and the adoption of policy of liberalisation of Indian economy by the Government of India in the early 90s. This model law of UNCITRAL provides the framework in order to achieve, to the maximum possible extent, uniform approach to the international commercial arbitration. Aim is to achieve convergence in arbitration law and avoid conflicting or varying provisions in the arbitration Acts enacted by various countries. Due to certain reasons, working of this Act witnessed some unpleasant developments and need was felt to smoothen out the rough edges encountered thereby. The Law Commission examined various shortcomings in the working of this Act and in its first Report, i.e., 176th Report made various suggestions for amending certain provisions of the Act. This exercise was again done by the Law Commission of India in its Report No. 246 in August, 2004 suggesting sweeping amendments touching upon various facets and acting upon most of these recommendations, Arbitration Amendment Act of 2015 was passed which came into effect from October 23, 2015.
16. Apart from other amendments, Section 12 was also amended and the amended provision has already been ::: Downloaded on - 06/10/2018 22:56:39 :::HCHP 14 reproduced above. This amendment is also based on the recommendation of the Law Commission which specifically dealt with the issue of 'neutrality of arbitrators' and a discussion in this behalf is contained .
in paras 53 to 60 and we would like to reproduce the entire discussion hereinbelow:
NEUTRALITY of ARBITRATORS
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 12(3) An arbitrator may be challenged only r 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 MANU/SC/0001/1983 : 1984 (3) SCC 627;
Secretary to Government Transport Department, Madras v. Munusamy Mudaliar MANU/SC/0435/1988 : 1988 (Supp) SCC 651; International Authority of India v. K.D. Bali and Anr. MANU/SC/0197/1988 : 1988 (2) SCC 360;
S. Rajan v. State of Kerala MANU/SC/0371/1992 : 1992 (3) SCC 608;
Indian Drugs & Pharmaceuticals v. IndoSwiss Synthetics Germ Manufacturing Co. Ltd. MANU/SC/0139/1996 : 1996 (1) SCC 54; Union of India v. M.P. Gupta (2004) 10 SCC 504; Ace ::: Downloaded on - 06/10/2018 22:56:39 :::HCHP 15 Pipeline Contract Pvt. Ltd. v. Bharat Petroleum Corporation Ltd. MANU/SC/7273/2007 : 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 Corporation Ltd. v. Raja Transport (P) Ltd. MANU/SC/1502/2009 :
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 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 Proprietary Ltd. v. Govt. of India, Ministry of Defence MANU/SC/0010/2012 : AIR 2012 SC 817 and Bipromasz Bipron Trading SA v. Bharat Electronics Ltd. MANU/SC/0478/2012 : (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 ::: Downloaded on - 06/10/2018 22:56:39 :::HCHP 16 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 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 ::: Downloaded on - 06/10/2018 22:56:39 :::HCHP 17 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 r express agreement in writing. In all/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. (emphasis supplied)
17. We may put a note of clarification here. Though, the Law Commission discussed the aforesaid aspect under the heading "Neutrality of Arbitrators", the focus of discussion was on impartiality and independence of the arbitrators which has relation to or bias towards one of the parties. In the field of international arbitration, neutrality is generally related to the nationality of the arbitrator. In international sphere, the 'appearance of neutrality' is considered equally important, which means that an arbitrator is neutral if his nationality is different from that of the parties. However, that is not the aspect which is being considered and the term 'neutrality' used is relatable to impartiality and independence of the arbitrators, without any bias towards any of the parties. In fact, the term 'neutrality of arbitrators' is commonly used in this context as well.
18. Keeping in mind the afore-quoted recommendation of the Law Commission, with which spirit, Section 12 has been amended by the Amendment Act, 2015, it is manifest that the main purpose for amending the provision was to provide for neutrality of arbitrators. In order to achieve this, Sub-section (5) of Section 12 lays down that notwithstanding any prior agreement to the contrary, any person whose relationship ::: Downloaded on - 06/10/2018 22:56:39 :::HCHP 18 with the parties or counsel or the subject matter of the dispute falls under any of the categories specified in the Seventh Schedule, he shall be ineligible to be appointed as an arbitrator. In such an eventuality, i.e., when the arbitration .
Clause finds foul with the amended provisions extracted above, the appointment of an arbitrator would be beyond pale of the arbitration agreement, empowering the court to appoint such arbitrator(s) as may be permissible. That would be the effect of non-obstante Clause contained in Sub-section (5) of Section 12 and the other party cannot insist on appointment of the arbitrator in terms of arbitration agreement."
12. In the aforesaid judgment, it has been categorically held by the Hon'ble Apex Court that main purpose for amending the provision was to provide for neutrality of arbitrators. Hon'ble Apex Court has further held that in order to achieve the neutrality, as referred above, Sub-section (5) of Section 12 lays down that notwithstanding any prior agreement to the contrary, any person, whose relationship with the parties or counsel or subject matter of dispute falls under any of the categories specified in the schedule, he shall be ineligible to be appointed as an arbitrator. Learned counsel representing the parties fairly state before this Court that notwithstanding the agreement(s) arrived inter se parties, a neutral /impartial arbitrator is required to be appointed for the adjudication of the dispute(s) inter se parties.
13. At this stage, learned counsel representing the parties fairly state before this court that a single impartial/neutral arbitrator may be appointed by this court for adjudication of the dispute inter se parties, to avoid different ::: Downloaded on - 06/10/2018 22:56:39 :::HCHP 19 verdicts on same issue and as such, on the joint request having been made by the learned counsel representing the .
parties, Hon'ble Mr. Justice D.D. Sud (Retired), is appointed as an arbitrator. His consent/declaration under Section 11 (8) of the Act ibid may be obtained by the Registry and be placed on record. He is requested to enter into reference within a period of two weeks from the date of receipt of a copy of this order. It shall be open for the learned arbitrator to determine his own procedure with the consent of the parties. Otherwise also, entire procedure with regard to fixing of time limit for filing pleadings or passing of award stands prescribed under Sections 23 and 29A of the Act.
14. Needless to say, award(s) shall be made strictly as per provisions contained in Arbitration & Conciliation Act. A copy of this order shall be made available to the learned arbitrator named above, by the Registry of this court within one week enabling him to take steps for commencement of the arbitration proceedings within stipulated period.
15. However, it may be clarified that till such time, application(s), if any, filed under Section 17 of the Act ibid praying therein for interim relief by the petitioner is/are decided by the learned arbitrator, interim relief granted by this court vide order dated 11.9.2018 in some of the arbitration cases shall remain in force and where such relief has not been ::: Downloaded on - 06/10/2018 22:56:39 :::HCHP 20 granted, respondents shall not take any coercive action, till the decision of application under Section 17, if any, filed by the .
concerned party. Learned counsel representing the parties undertake to move appropriate application under Section 17 of the Act, within ten days of the arbitrator entering upon reference, failing which interim order granted by the court shall lose its efficacy.
16. Though bare perusal of agreement(s) suggests that place of arbitration in normal circumstances would be at Mumbai, but the learned counsel representing the parties state that they are agreeable for arbitration proceedings to be held at Shimla. Ordered accordingly.
17. The arbitration cases are disposed of.
(Sandeep Sharma) Judge October 1, 2018 vikrant ::: Downloaded on - 06/10/2018 22:56:39 :::HCHP