The Single Bench of the Delhi High Court in the case of Ram Kripal Singh Construction Pvt. Ltd vs NTPC consisting of Justice Anup Jairam Bhambhani held that an arbitrator rendered ineligible u/s 12(5) cannot continue merely because arbitral proceedings commenced prior to the amendment inserting section 12(5): of Arbitration & Conciliation Act 1996.
Facts
Section 12(5) of the Arbitration & Conciliation Act 1996 (‘A&C Act’) clarifies that any individual whose relationship with the party, the subject matter of dispute, and counsel is found to be falling under the Seventh Schedule of the act, will not be considered eligible for the appointment as an arbitrator. However, the applicability of this sub-section could be waived off by an express agreement in writing.
This petition u/s 11 of the A&C Act was filed seeking the appointment of an arbitrator to adjudicate upon the disputes that were stated to have arisen with the respondent from a Letter of Award related to the setting-up of a township for the respondent’s Super Thermal Power Project; the issuance of the letter of award having culminated in the parties signing a Contract Agreement (‘contract’). Prior to appointing the arbitrator whose termination has been sought by way of this petition, the respondent had also appointed an arbitrator earlier, who had terminated the proceedings.
Procedural History
Petitioner first invoked arbitration whereupon the respondent appointed the Joint General Manager, NTPC as the sole arbitrator (‘1st Arbitrator’), who terminated the proceedings on 22.06.2016. Thereafter, the petitioner filed an application for recall of order, whereupon the Chairman & Managing Director (‘CMD’), NTPC appointed another arbitrator (‘2nd Arbitrator’).
The petitioner wrote a letter to the respondent’s CMD objecting to the appointment of the 2nd Arbitrator, since the said person was the Regional Executive Director of the respondent, apart from being the Project Head of the project in relation to which disputes had arisen. It was contended that the disclosures made by the 2nd Arbitrator showed that his appointment was not in conformity with the extant position of law post the coming into force of the Arbitration & Conciliation (Amendment) Act, 2015 (‘Amendment Act-2015’); thereby seeking appointment of another arbitrator.
However, the respondent forwarded the petitioner’s objection to the 2nd Arbitrator himself, who held that the Amendment Act-2015 would not apply to the proceedings, which had been invoked prior to the coming into force of the same.
Thereafter the petitioner requested the 2nd Arbitrator to keep the arbitral proceedings pending, since the petitioner was initiating legal proceedings, which was denied. The petitioner filed this petition, seeking termination of the 2nd Arbitrator’s mandate; but soon thereafter, during the pendency of the termination petition, the 2nd Arbitrator passed an order rejecting the petitioner’s application for recall of order dated 22.06.2016.
Contentions Made
Petitioner: It was contended that the 2nd arbitrator was de-facto and de-jure ineligible to be appointed as arbitrator; and his mandate must therefore be terminated.
Respondent: It was contended that the appointment of the 2nd Arbitrator is valid since it was made in arbitral proceedings that commenced on 27.01.2014 by way of issuance of the invocation notice prior to the amendment inserting section 12(5) in the A&C Act with retrospective effect from 23.10.2015.
Observations of the Court
The question which arose here was whether the appointment of the 2nd Arbitrator was required to comply with the mandate of section 12(5) of the A&C Act inserted vide the Amendment Act-2015 with retrospective effect from 23.10.2015.
Relying on Ellora Paper Mills Limited case, it noted that 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 was what the parties agreed.
It opined that ineligibility for appointment must necessarily be tested at the threshold, when the appointment is to be made; and therefore, section 12(5) must apply regardless of whether the arbitration proceedings themselves commenced before or after coming into force of the Amendment Act-2015, provided the appointment of the arbitrator is being considered on a date when section 12(5) is in force. Any other interpretation of section 12(5) would defeat the legislative intent that informed the amendment for independence and impartiality of an arbitrator:
“Only one inference arises, viz. that if an arbitrator is appointed after section 12(5) has come into force, the arbitrator would be ineligible if he does not pass muster on the anvil of the Seventh Schedule read in context of section 12(5) of the A&C Act. This position would obtain regardless of whether the arbitral proceedings themselves commenced prior to, or post, coming into force of the Amendment Act-2015, provided the arbitrator is being, or has been, appointed after the amendment took effect.”
Therefore, if the 2nd Arbitrator was per-se ineligible for appointment in view of the Seventh Schedule to the A&C Act, he could not have been appointed as a matter of law. Consequently, the decision of the 2nd Arbitrator rejecting the recall application, upholding the termination of the arbitral proceedings by the 1st Arbitrator, could not be sustained but only because the 2nd Arbitrator had no jurisdiction to make that decision. Further, u/s 14 of the A&C Act contemplates not only termination of the mandate of an arbitrator but also the substitution of the arbitrator by another.
Judgment
Accordingly, in view of the above discussion, this petition was allowed; the mandate of the 2nd Arbitrator appointed by the respondent was terminated; order upholding the termination of arbitral proceedings, was also set aside; and Hon’ble Mr. Justice Aftab Alam, former Judge, Supreme Court of India was appointed as the Sole Arbitrator to adjudicate upon the disputes between the parties. Parties were directed to approach the learned Arbitrator appointed within 10 days.
Case: Ram Kripal Singh Construction Pvt. Ltd vs NTPC
Citation: O.M.P. (T) (COMM.) 63/2020
Bench: Justice Anup Jairam Bhambhani
Decided on: 9th November 2022
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