M/S. B.S.N. Joshi And Sons Limited vs Rashtriya Ispat Nigam Limited & ...
2021 Latest Caselaw 3314 AP

                                  1




        IN THE HIGH COURT OF ANDHRA PRADESH

                                ***

Civil Revision Petition No. 3142 of 2019

Between:

M/s. B.S.N. Joshi and Sons Limited.

.... Petitioner And

1. Rashtriya Ispat Nigam Limited & Another.

.... Respondents

AND

Civil Revision Petition No. 3148 of 2019

Between:

M/s. B.S.N. Joshi and Sons Limited .... Petitioner And

1. Rashtriya Ispat Nigam Limited & Another.

.... Respondents

Date of Judgment pronounced on : 02.09.2021

HON'BLE SRI JUSTICE C. PRAVEEN KUMAR

1. Whether Reporters of Local newspapers : Yes/No may be allowed to see the judgments?

2. Whether the copies of judgment may be marked : Yes/No to Law Reporters/Journals:

3. Whether the Lordship wishes to see the fair copy : Yes/No of the Judgment?

* THE HON'BLE SRI JUSTICE C. PRAVEEN KUMAR

AND

THE HON'BLE SRI JUSTICE B. KRISHNA MOHAN

+ Civil Revision Petition No. 3142 of 2019

And

Civil Revision Petition No. 3148 of 2019

% 02.09.2021

# M/s. B.S.N. Joshi and Sons Limited .... Petitioner

And

$ 1. Rashtriya Ispat Nigam Limited & Another.

.... Respondents

! Counsel for the Petitioner: Sri. V.R.N. Prashanth

Counsel for the Respondents: Sri. W.B. Srinivas

<Gist :

>Head Note:

? Cases referred:

1) (2019) 5 SCC 755

2) (2017) 8 SCC 377

3) (2018) 12 SCC 471

4) 2017 (2) ARBLR 116 (Delhi)

5) (1998) 7 SCC 162

THE HON'BLE SRI JUSTICE C. PRAVEEN KUMAR

AND

THE HON'BLE SRI JUSTICE B. KRISHNA MOHAN

Civil Revision Petition No. 3142 of 2019

And

Civil Revision Petition No. 3148 of 2019

COMMON ORDER: (Per Hon'ble Sri Justice C.Praveen Kumar)

1) Civil Revision Petition No. 3142 of 2019 is filed by the

Petitioner, aggrieved by the Order of the Special Judge for Trial

and Disposal of Commercial Disputes at Visakhapatnam in

G.R.No.133 of 2019, dated 03.06.2019, while Civil Revision

Petition No. 3148 of 2019 is filed challenging the extension of

time for passing the award in C.A.O.P. No. 18 of 2019. As both

the Civil Revision Petitions are interconnected, they are disposed

off by this common order.

2) The Petitioner herein filed an application under Section 14

(2) of the Arbitration and Conciliation Act, 1996 ['Act'] before the

Commercial Court at Visakhapatnam, questioning the

constitution of Arbitral Tribunal with the 2nd Respondent as its

Sole Arbitrator by the 1st Respondent, as illegal and violative of

the provisions of the Act.

3) The facts, which lead to filing of the present application,

are as under:

(i) Originally, the Petitioner herein filed an application

under Section 14 (2) read with Fifth Schedule of the Act

before the Arbitral Tribunal for termination of the

mandate of the arbitrator, which was dismissed.

Challenging the same, the Petitioner filed W.P. No.

46299 of 2018 before this court. By an Order, dated

12.03.2019, [to which one of us CPK,J was a member]

rejected the application on the ground that the

appropriate remedy for the Petitioner would be to

challenge the order in the appeal filed under Section 34

of the Act, after the award is passed. It was further held

that the order passed under Section 13 (2) of the Act is

not amenable to the extraordinary jurisdiction of the

High Court under Article 226 of the Constitution of

India.

(ii) Pursuant to the Order passed by the Division Bench of

this court, an application under Section 14 (2) of the Act

came to be filed before the Commercial Court, for

termination of the mandate of the Arbitrator. The

Commercial Court rejected the application, primarily,

on the ground that the challenge to the appointment of

the arbitrator was made under Fifth Schedule and not

under Seventh Schedule. The Court mainly relied upon

paragraph "O" of the petition filed under Section 14,

which is evident from paragraph no. 9 of the Order

impugned in the present case. Apart from that, the

Court also dealt with the issue as to whether an

application under Section 14 can be filed before the

court when once an order has been passed by the

Arbitral Tribunal under Section 12(2) for the same relief

and by this court exercising its jurisdiction under

Article 226 of the Constitution of India. Challenging the

same, these two Civil Revision Petitions are filed.

4) Heard Sri. V.R.N. Prashanth, learned Counsel for the

Petitioner and Sri. W.B. Srinivas, learned Counsel appearing for

the Respondents, through Blue Jeans video conferencing APP

and with their consent, the Civil Revision Petitions are disposed

of.

5) Relying upon the judgments in Bharat Broadband

Network Limited v. United Telecoms Limited1; TRF Ltd. v.

Energo Engineering Projects Ltd.,2 and HRD Corporation

(Marcus Oil and Chemical Division) v. GAIL (India) Limited

(formerly Gas Authority of India Limited)3 Sri. V.R.N.

Prashanth, learned Counsel for the Petitioner, would contend

that that the order is illegal and contrary to the provisions of the

Act. According to him, there is a specific plea in paragraph 'q' 't',

'u' and 'v' of the application filed under Section 14 challenging

(2019) 5 SCC 755

(2017) 8 SCC 377

(2018) 12 SCC 471

the appointment of the 2nd Respondent as arbitrator as violative

of Section 12(5) read with Seventh Schedule. That being so, he

submits that the finding of the Trial Court that the application

was only under Fifth Schedule is erroneous. He further submits

that the Trial Court was carried away by the earlier filed

application under Section 12 (2) read with 13 of the Act and

Fifth Schedule and the orders passed therein. He further

submits that since 2nd Respondent falls in one of the category

specified in Seventh Schedule, he is ineligible to act as an

Arbitrator. He also submits that when once the 1st Respondent

represented by its employee is ineligible to act as an arbitrator

by operation of law, the said person cannot nominate another

person as an arbitrator. In other words, his plea appears to be

that the objection raised before the court below that the dispute

could only be raised before the tribunal and if he fails to succeed

the same, can be challenged only in a appeal filed under Section

34 may not be correct as Section 13 and 14 of the Act operate in

two different fields.

6) On the other hand, Sri. W.B. Srinivas, learned Counsel

appearing for the Respondents opposed the same. He also relied

upon the findings given in HRD Corporation case [cited 3rd

supra] in support of his plea. According to him, application

under Section 14 of the Act itself is not maintainable and the

proper course for the Petitioner would be to ventilate his

grievance before the arbitral tribunal having regard to the Order

passed by this Court in W.P.No. 46299 of 2018. He further

submits that the issue raised herein were adjudicated before

this court earlier and being unsuccessful, the Petitioner cannot

raise the very same plea in different forums. He further submits

that the termination of the mandate of the Arbitrator was under

Fifth Schedule and not under Seventh Schedule of the Act,

which prohibits the Petitioner from seeking any relief at this

stage. When once the Tribunal has held that there were no

justifiable doubts as to the independence or impartiality of the

arbitrator, the Tribunal must continue with the arbitral

proceedings under Section 13 (4) and pass an award and only

after passing of the award the Petitioner can question the same

under Section 34 of the Act. He further submits that the

Petitioner never averred or took plea that the 1st Respondent

cannot be an arbitrator or nominate any other person to act as

an arbitrator.

7) In reply, the learned Counsel for the Petitioner would

submit that all the pleas raised now were in-fact taken before

the court, which according to him, is evident from the

application made under Section 14 (2) of the Act. He submits

that, the only circumstance under which an arbitrator can be

continued is only when there is an agreement between the

Petitioner and the Respondent, which is not present in the

instant case.

8) The question that falls for consideration is, whether the

petition under Section 14 (2) of the Act seeking termination of the

mandate of the arbitrator before the court is maintainable, when

such a challenge was rejected by the tribunal under Section

13(2)?

9) Before proceeding further, it would be appropriate to refer

to Sections 12(2), 12(5), 13(2), 13(5) and 14 of the Arbitration

and Conciliation (Amendment) Act, 2015 (Act 3 of 2016)

['Amendment Act'], which are as under:

"12. Grounds for challenge.--

(1) x x x x x x

(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) x x x x x x

(4) x x x x x x

[(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.]"

"Section 13. Challenge procedure.--

(1) x x x x x x

(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) x x x x x x

(4) x x x x x x

(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) x x x x x x"

"Section 14. Failure or impossibility to act.--

1. [The mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, if ---]

(a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and

(b) he withdraws from his office or the parties agree to the termination of his mandate.

(2) If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate.

(3) If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or sub-section (3) of section 12."

10) After the 2016 Amendment Act, a dichotomy is made by

the Act between persons who become "ineligible" to be appointed

as arbitrators, and persons about whom justifiable doubts exist

as to their independence or impartiality. Since ineligibility goes

to the root of the appointment, Section 12(5) read with the

Seventh Schedule makes it clear that if the arbitrator falls in any

one of the categories specified in the Seventh Schedule, he

becomes "ineligible" to act as arbitrator. Once he becomes

ineligible, it is clear that, under Section 14(1)(a), he then

becomes de jure unable to perform his functions inasmuch as,

in law, he is regarded as "ineligible". In order to determine

whether an arbitrator is de jure unable to perform his functions,

it is not necessary to go to the Arbitral Tribunal under Section

13. Since such a person would lack inherent jurisdiction to

proceed any further, an application may be filed under Section

14(2) to the Court to decide on the termination of his/her

mandate on this ground. As opposed to this, in a challenge

where grounds stated in the Fifth Schedule are disclosed, which

give rise to justifiable doubts as to the arbitrator's independence

or impartiality, such doubts as to independence or impartiality

have to be determined as a matter of fact in the facts of the

particular challenge by the Arbitral Tribunal under Section 13. If

a challenge is not successful, and the Arbitral Tribunal decides

that there are no justifiable doubts as to the independence or

impartiality of the arbitrator/arbitrators, the Tribunal must then

continue the arbitral proceedings under Section 13(4) and make

an award. It is only after such award is made, that the party

challenging the arbitrator's appointment on grounds contained

in the Fifth Schedule may make an application for setting aside

the arbitral award in accordance with Section 34 on the

aforesaid grounds. [HRD Corporation case [cited 3rd supra]].

11) In Bharat Broadband Network Limited case [cited 1st

supra], the Hon'ble Apex Court after referring to TRF Ltd case

[cited 2nd supra] and HRD Corporation case [cited 3rd supra],

held as under:

"14. From a conspectus of the above decisions, it is clear that Section 12(1), as substituted by the Arbitration and Conciliation (Amendment) Act, 2015 ["Amendment Act,

2015"], makes it clear that when a person is approached in connection with his possible appointment as an arbitrator, it is his duty to disclose in writing any circumstances which are likely to give rise to justifiable doubts as to his independence or impartiality. The disclosure is to be made in the form specified in the Sixth Schedule, and the grounds stated in the Fifth Schedule are to serve as a guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. Once this is done, the appointment of the arbitrator may be challenged on the ground that justifiable doubts have arisen under sub-section (3) of Section 12 subject to the caveat entered by sub- section (4) of Section 12. The challenge procedure is then set out in Section 13, together with the time limit laid down in Section 13(2). What is important to note is that the arbitral tribunal must first decide on the said challenge, and if it is not successful, the tribunal shall continue the proceedings and make an award. It is only post award that the party challenging the appointment of an arbitrator may make an application for setting aside such an award in accordance with Section 34 of the Act.

15. Section 12(5), on the other hand, is a new provision which relates to the de jure inability of an arbitrator to act as such. Under this provision, any prior agreement to the contrary is wiped out by the non- obstante clause in Section 12(5) the moment any person whose relationship with the parties or the counsel or the subject matter of the dispute falls under the Seventh Schedule. The sub-section then declares that such person shall be "ineligible" to be appointed as arbitrator. The only way in which this ineligibility can be removed is by the proviso, which again is a special provision which states that parties may, subsequent to disputes having arisen between them, waive the applicability of Section 12(5) by an express agreement in writing. What is clear, therefore, is that where, under any agreement between the parties, a person falls within any of the categories set out in the Seventh Schedule, he is, as a matter of law, ineligible to be appointed as an arbitrator. The only way in which this

ineligibility can be removed, again, in law, is that parties may after disputes have arisen between them, waive the applicability of this sub-section by an "express agreement in writing". Obviously, the "express agreement in writing" has reference to a person who is interdicted by the Seventh Schedule, but who is stated by parties (after the disputes have arisen between them) to be a person in whom they have faith notwithstanding the fact that such person is interdicted by the Seventh Schedule.

17. The scheme of Sections 12, 13, and 14, therefore, is that where an arbitrator makes a disclosure in writing which is likely to give justifiable doubts as to his independence or impartiality, the appointment of such arbitrator may be challenged under Sections 12(1) to 12(4) read with Section 13. However, where such person becomes "ineligible" to be appointed as an arbitrator, there is no question of challenge to such arbitrator, before such arbitrator. In such a case, i.e., a case which falls under Section 12(5), Section 14(1)(a) of the Act gets attracted inasmuch as the arbitrator becomes, as a matter of law (i.e., de jure), unable to perform his functions under Section 12(5), being ineligible to be appointed as an arbitrator. This being so, his mandate automatically terminates, and he shall then be substituted by another arbitrator under Section 14(1) itself. It is only if a controversy occurs concerning whether he has become de jure unable to perform his functions as such, that a party has to apply to the Court to decide on the termination of the mandate, unless otherwise agreed by the parties. Thus, in all Section 12(5) cases, there is no challenge procedure to be availed of. If an arbitrator continues as such, being de jure unable to perform his functions, as he falls within any of the categories mentioned in Section 12(5), read with the Seventh Schedule, a party may apply to the Court, which will then decide on whether his mandate has terminated."

12) Keeping in view the principles laid down in the judgments

referred to above, we shall now proceed to deal with the matter.

13) One of the objections raised by the learned counsel for the

Respondents is to the maintainability of an application before the

Commercial court on the ground that the issue raised in the present

application was already decided by a Division Bench of this

Court in W.P. No. 46299 of 2018 and the only option left to the

Petitioner would be to challenge it under Section 34 of the Act.

14) It is to be noted that, this Court while disposing of the writ

petition did not go into the merits of the case, but, however,

directed the Petitioner to avail the remedy available under law. It

is also an undisputed fact that the earlier application filed before

the arbitral tribunal was under Section 13 and 12(2) read with

Fifth Schedule of the Act. The fact that Sections 13 and 14

operate in two different fields was considered by the Hon'ble

Supreme Court in Bharat Broadband Network Limited [cited

1st supra]. It would be appropriate to extract paragraph no. 17 of

the said judgment, which is as under:

"17. The scheme of Sections 12, 13, and 14, therefore, is that where an arbitrator makes a disclosure in writing which is likely to give justifiable doubts as to his independence or impartiality, the appointment of such arbitrator may be challenged under Sections 12(1) to 12(4) read with Section 13. However, where such person becomes "ineligible" to be appointed as an arbitrator, there is no question of challenge to such arbitrator, before such arbitrator. In such a case, i.e., a case which falls under Section 12(5), Section 14(1)(a) of the Act gets attracted inasmuch as the arbitrator becomes, as a matter of law (i.e., de jure), unable to perform his functions under Section 12(5), being ineligible to be appointed as an arbitrator. This being so, his mandate automatically

terminates, and he shall then be substituted by another arbitrator under Section 14(1) itself. It is only if a controversy occurs concerning whether he has become de jure unable to perform his functions as such, that a party has to apply to the Court to decide on the termination of the mandate, unless otherwise agreed by the parties. Thus, in all Section 12(5) cases, there is no challenge procedure to be availed of. If an arbitrator continues as such, being de jure unable to perform his functions, as he falls within any of the categories mentioned in Section 12(5), read with the Seventh Schedule, a party may apply to the Court, which will then decide on whether his mandate has terminated. Questions which may typically arise under Section 14 may be as to whether such person falls within any of the categories mentioned in the Seventh Schedule, or whether there is a waiver as provided in the proviso to Section 12(5) of the Act. As a matter of law, it is important to note that the proviso to Section 12(5) must be contrasted with Section 4 of the Act. Section 4 deals with cases of deemed waiver by conduct; whereas the proviso to Section 12(5) deals with waiver by express agreement in writing between the parties only if made subsequent to disputes having arisen between them.

15) It would also be appropriate to refer to the observations

made by the Commercial Court with regard to the

maintainability of the petition under Section 14 vis-a-vis the

order passed by this Court in the writ petition. Paragraph No.12,

13 and 15 of the Order impugned, in this case, deals with the

same, which are as under:

"12. Similarly in Gangotri Enterprises Limited v. NTPC Tamil Naidu Energy Company Limited4 a petition u/s.

14(2) of the Act was filed, praying for termination of appointed sole arbitrator, after the arbitral tribunal was moved with a challenge under Section 13(3) of the Act, the

2017 (2) ARBLR 116 (Delhi)

Hon'ble High Court of Delhi considered whether the decision of the arbitrator rejecting the challenge under Section 12 of the Act can be assailed under Section 14 of the Act. The Court made a reference to sub-section (5) of Section 13 of the Act and held that,

"Given the specific provisions of Section 13, recourse to Section 14 of the Act is not available to challenge the decisions of the arbitrator rejecting the challenge under Section 12 of the Act and to continue the arbitral proceeding."

"The Courts have generally refused to view Section 14(2) of the Act as a remedy to redress the failure to challenge under Section 13(3) of the Act. Section 13(3) and Section 14(2) tend to be treated a parallel remedies which do not intersect."

13. The Hon'ble High Court of Delhi has, however, clarified that merely because a challenge on the impartiality and neutrality under Section 13 (3) has been made before an arbitral tribunal, there is no bar in moving a petition under Section 14(2) against an arbitrator whose relationship makes him ineligible as per the Seventh Schedule of the Act. But, in the present petition, the petitioner has been challenging the appointment under Fifth Schedule of the Act. The Hon'ble High Court of Delhi in HRD Corporation (Marcus Oil and Chemical Division) v. GAIL (India) Limited held that a petition under Section 14 of the Act challenging an arbitrator under Section 12 (5) of the Act read with Seventh Schedule, was maintainable before a Court of law, notwithstanding the fact that the arbitral tribunal has dismissed a challenge before them on the same ground. However, a petition under Section 14 o the Act encompassing a challenge to the Arbitral Tribunal in respect of Section 12 (1) of the Act read with Fifth Schedule was held not maintainable.

15. The learned Counsel for the Petitioner in order to substantiate his contention relied upon a decision in HRD Corporation (Marcus Oil and Chemical Division) v.

GAIL (India) Limited wherein their Lordships of the Hon'ble Supreme Court of India held that, "Section 12(5) read with Seventh Schedule makes it clear that if the arbitrator falls in anyone of the categories specified in the Seventh Schedule, he comes 'ineligible' to act as arbitrator. Once he becomes ineligible, it is clear that, under Section 14 (1) (a), he then become de jure unable to perform his functions in as much as, in law, he is regarded as 'ineligible'. Their Lordships further held in the above decision that, in order to determine whether an arbitrator is dejure unable to perform his functions, it is not necessary to go to the Arbitral Tribunal under Section 13. Since such a person would lack inherent jurisdiction to proceed any further, an application may be filed under Section 14 (2) to the Court to decide on the termination of his/her mandate on this ground."

16) As observed by the Apex Court in HRD Corporation, [cited

3rd supra], to determine whether an arbitrator is de jure unable to

perform his functions, it is not necessary to go to the Arbitral

Tribunal under Section 13, but an application can be filed

under Section 14(2) to the Court to decide on the termination of

his/her mandate. Further, the order impugned, in this case, also

refers to the order of the Delhi High Court wherein it was held

that there is no bar to make an application under Section 14(2)

of the Act in spite of an application under Section 13(2) made

before the Tribunal is rejected. When both the Sections of law

operate in two different fields, we hold that there is no illegality

in moving an application under Section 14 (2) of the Act in spite

of there being an order under Section 13 (2) of the Act. Further,

the provisions of the Act do not anywhere expressly prescribe

any bar in approaching the court under Section 14 of the Act. As

urged by the learned counsel for the Petitioner, it appears that

the court below got swayed by the earlier order passed by the

Tribunal and the High Court.

17) The next question that arises for consideration would be,

whether the tribunal was right in holding that the application

under Section 14 was made under Fifth Schedule and not under

Schedule Seventh of the Act?

18) As stated by us earlier, the court below mainly relied on

paragraph "O" of the petition filed under Section 14, to say that

the application was filed under Fifth Schedule and not under

Seventh Schedule, which is evident from paragraph 9 of the

Order. In order to appreciate the same, it would be appropriate

to extract paragraph "O" of the petition, which is as under:

"(O). The Petitioner respectfully submits that the 2nd Respondent/Sole Arbitrator without considering all these facts and circumstances entered on the reference and called for a meeting on 28.04.2018 at Visakhapatnam. The Petitioner also informed the 2nd Respondent that the Petitioner did not accept his appointment and the Arbitral Tribunal is seized of the powers and the arbitral Tribunal cannot be constituted since the Arbitration proceedings have already terminated. Without prejudice to the rights of the Petitioner, the Petitioner filed an application for termination of the arbitration proceedings along with objections under Schedule-V. It was contended that once the arbitration proceedings are held, no further proceedings can be held and that the arbitral tribunal is seized of the powers to proceed in the matter."

19) From a reading of the above paragraph, it is clear that

while narrating the facts of the case, it was mentioned that the

Petitioner filed an application for termination of the arbitration

proceedings along with objections under Fifth Schedule before

the Arbitral Tribunal. Similar such sentence is also found in

paragraph "n" of the petition. The purport of the two paragraphs

is to bring to the notice of the court the events which took place

prior to filing of Section 14 application.

20) Paragraph 'q' 't' 'u' and 'v' of the application categorically

state that as per Seventh Schedule (Section 12 (5) of the Act (as

amended)), the 2nd Respondent is ineligible to be appointed as

an arbitrator, which is not only violative of the Act, but also

against the public policy of India. It would be appropriate to

extract the four paragraphs, which are as under:

"(q). The Petitioner respectfully submits that it came to know that the 2nd Respondent has been engaged by the 1st Respondent as its Consultant and has business interest with the 1st Respondent. The Amendment Act, 2016 incorporated Schedule-SEVENTH to the Arbitration and Conciliation Act, 1996 with a view to ensure that the persons constituting the Arbitral Tribunal should discharge their functions honestly, impartially, independently and without any prejudice. The Schedule-SEVENTH specifically prohibits the appointment of any person having business dealings with the parties to the dispute as arbitrators.

(t). The Petitioner respectfully submits that as per the Schedule -SEVENTH (Section 12 (5) of the Arbitration and Conciliation Act, 1996 (as amended) the 2nd Respondent is ineligible to be appointed as an Arbitrator. But in violation of Act as well as Public Policy of India the 1st Respondent in order to achieve its goals by dubious means appointed the 2nd Respondent only to pass an award in favour of the 1st Respondent. It is quite surprising to note that before passing the interim order on the challenge, 2nd Respondent

obtained a legal opinion from the panel of the Advocates of the 1st Respondent. This clearly shows the collusion between the 1st Respondent and the 2nd Respondent.

(u) The Petitioner respectfully submits that the 2nd Respondent was appointed in violation of the Section 14(1)(a) of the Act 1996 (as amended) and as such he is ineligible to act as an Arbitrator and if he allowed to be continued the proceedings he will act in violation of the law of the land and public policy of India and pass an Award by duly burying the justice.

(v). The Petitioner respectfully submits that the Act was enacted to provide speedy disposal and to show remedy to the parties. If the 2nd Respondent is allowed to be continued as an Arbitrator the very object of the Act will be defeated and justice be denied. Section 12 (5) read with the Seventh Schedule makes it clear that if the 2nd Respondent falls in any one of the category specified in the Seventh Schedule he became ineligible to act as an arbitrator."

21) From a reading of the above four paragraphs, it is very

clear that Section 14 application was under Section 12(5) read

with Seventh Schedule of the Act and definitely not under

Section 12 (2) read with Fifth Schedule of the Act. Under those

circumstances, the finding of the tribunal that the application

has to be rejected on the ground that it was moved under

Section 12 (2) read with Fifth Schedule is incorrect and the same

is liable to be set-aside.

22) The next question that falls for consideration would be,

whether the 1st Respondent can appoint the 2nd Respondent as an

arbitrator?

23) Coming to the appointment of 2nd Respondent as an

arbitrator, it is an admitted fact that he is a Technical

Consultant to the 1st Respondent. The appointment of the 2nd

Respondent as an arbitrator, vide letter dated 30.03.2018 and

communication to that effect which was received by the

Petitioner on 04.04.2018 would reveal that the Deputy General

Manager of 1st Respondent Company [an employee of R1]

appointed him as sole arbitrator, to adjudicate the dispute

between the parties. The Petitioner herein was requested to give

consent for the same, but, no consent was given, instead

objections were raised at the earliest point of time, questioning

the appointment of the arbitrator.

24) Issue identical to the case on hand fell for consideration in

TRF Ltd case [cited 2nd supra]. It was a case where the

Respondent therein issued a purchase order to the appellant to

complete the design, manufacture, supply, transport, unloading,

storage etc., of various articles including wagon tippler, side arm

charger, apron feeder, etc. When a controversy arose with regard

to encashment of bank guarantee, an application under Section

9 of the Act was filed seeking an order of restraint for

encashment of the advance bank guarantee and the

performance bank guarantee. On 28.12.2015 the appellant

therein invoked the arbitration clause in terms of Clause 33 of

the General Terms and Conditions of the Purchase Order

seeking reference of the disputes to an arbitrator. The appellant

asserted before the High Court that it had no objection to the

procedure for appointment of arbitrator provided under the

purchase order. However, the same was denied by the

respondent on the ground that it was contrary to the binding

contractual terms and accordingly rejected the suggestion given

by the appellant. Eventually, a former Judge of the Supreme

Court was appointed as the sole arbitrator in terms of Clause

33(d) of the purchase order. In paragraph 12 of the Order, the

Hon'ble Supreme Court observed as under:

"12. Sub-section (5) of Section 12, on which immense stress has been laid by the learned counsel for the appellant, as has been reproduced above, commences with a non-obstante clause. It categorically lays down that if a person whose relationship with the parties or the counsel or the subject matter of dispute falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator. There is a qualifier which indicates that parties may, subsequent to the disputes arisen between them, waive the applicability by express agreement in writing. The qualifier finds place in the proviso appended to sub- section (5) of Section 12. On a careful scrutiny of the proviso, it is discernible that there are fundamentally three components, namely, the parties can waive the applicability of the sub-section; the said waiver can only take place subsequent to dispute having arisen between the parties; and such waiver must be by an express agreement in writing.

25) After referring to Section 12, 13 and the two Schedules of

the Act, the Hon'ble Supreme Court in paragraphs 50, 53 and

54 held as follows:

"50. First, we shall deal with Clause (d). There is no quarrel that by virtue of Section 12(5) of the Act, if any person who falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as the arbitrator. There is no doubt and cannot be, for the language employed in the Seventh Schedule, the Managing Director of the Corporation has become ineligible by operation of law. It is the stand of the learned senior counsel for the appellant that once the Managing Director becomes ineligible, he also becomes ineligible to nominate. Refuting the said stand, it is canvassed by the learned senior counsel for the respondent that the ineligibility cannot extend to a nominee if he is not from the Corporation and more so when there is apposite and requisite disclosure. We think it appropriate to make it clear that in the case at hand we are neither concerned with the disclosure nor objectivity nor impartiality nor any such other circumstance. We are singularly concerned with the issue, whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator. At the cost of repetition, we may state that when there are two parties, one may nominate an arbitrator and the other may appoint another. That is altogether a different situation. If there is a clause requiring the parties to nominate their respective arbitrator, their authority to nominate cannot be questioned. What really in that circumstance can be called in question is the procedural compliance and the eligibility of their arbitrator depending upon the norms provided under the Act and the Schedules appended thereto. But, here is a case where the Managing Director is the "named sole arbitrator" and he has also been conferred with the power to nominate one who can be the arbitrator in his place. Thus, there is subtle distinction. In this regard, our attention has been drawn to a two-Judge Bench decision in State of Orissa and others v. Commissioner of Land Records & Settlement, Cuttack5. In the said case, the question

(1998) 7 SCC 162

arose can the Board of Revenue revise the order passed by its delegate. Dwelling upon the said proposition, the Court held:

"25. We have to note that the Commissioner when he exercises power of the Board delegated to him under Section 33 of the Settlement Act, 1958, the order passed by him is to be treated as an order of the Board of Revenue and not as that of the Commissioner in his capacity as Commissioner. This position is clear from two rulings of this Court to which we shall presently refer. The first of the said rulings is the one decided by the Constitution Bench of this Court in Roop Chand v. State of Punjab. In that case, it was held by the majority that where the State Government had, under Section 41(1) of the East Punjab Holdings (Consolidation and Prevention of Fragmentation) Act, 1948, delegated its appellate powers vested in it under Section 21(4) to an "officer", an order passed by such an officer was an order passed by the State Government itself 20 (1998) 7 SCC 162 and "not an order passed by any officer under this Act" within Section 42 and was not revisable by the State Government. It was pointed out that for the purpose of exercise of powers of revision by the State under Section 42 of that Act, the order sought to be revised must be an order passed by an officer in his own right and not as a delegate of the State. The State Government was, therefore, not entitled under Section 42 to call for the records of the case which was disposed of by an officer acting as its delegate." [emphasis in original].

53. The aforesaid authorities have been commended to us to establish the proposition that if the nomination of an arbitrator by an ineligible arbitrator is allowed, it would tantamount to carrying on the proceeding of

arbitration by himself. According to learned counsel for the appellant, ineligibility strikes at the root of his power to arbitrate or get it arbitrated upon by a nominee.

54. In such a context, the fulcrum of the controversy would be, can an ineligible arbitrator, like the Managing Director, nominate an arbitrator, who may be otherwise eligible and a respectable person. As stated earlier, we are neither concerned with the objectivity nor the individual respectability. We are only concerned with the authority or the power of the Managing Director. By our analysis, we are obligated to arrive at the conclusion that once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator. The arbitrator becomes ineligible as per prescription contained in Section 12(5) of the Act. It is inconceivable in law that person who is statutorily ineligible can nominate a person. Needless to say, once the infrastructure collapses, the superstructure is bound to collapse. One cannot have a building without the plinth. Or to put it differently, once the identity of the Managing Director as the sole arbitrator is lost, the power to nominate someone else as an arbitrator is obliterated. Therefore, the view expressed by the High Court is not sustainable and we say so."

26) Similar issue came up for consideration in Bharat

Broadband Network Limited [cited 1st supra], where the

mandate of Shri Khan has been terminated as he became de

jure unable to perform his function as an arbitrator. It was also

a case where the Managing Director of the appellant could not

have acted as an arbitrator being ineligible to act as arbitrator

under Item 5 of the Seventh Schedule. Dealing with the same,

the court held as under:

"18. On the facts of the present case, it is clear that the Managing Director of the appellant could not have acted

as an arbitrator himself, being rendered ineligible to act as arbitrator under Item 5 of the Seventh Schedule, which reads as under:

"Arbitrator's relationship with the parties or counsel

xxx xxx xxx

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".

Whether such ineligible person could himself appoint another arbitrator was only made clear by this Court's judgment in TRF Ltd. (supra) on 03.07.2017, this Court holding that an appointment made by an ineligible person is itself void ab initio. Thus, it was only on 03.07.2017, that it became clear beyond doubt that the appointment of Shri Khan would be void ab initio. Since such appointment goes to "eligibility", i.e., to the root of the matter, it is obvious that Shri Khan's appointment would be void. There is no doubt in this case that disputes arose only after the introduction of Section 12(5) into the statute book, and Shri Khan was appointed long after 23.10.2015. The judgment in TRF Ltd. (supra) nowhere states that it will apply only prospectively, i.e., the appointments that have been made of persons such as Shri Khan would be valid if made before the date of the judgment. Section 26 of the Amendment Act, 2015 makes it clear that the Amendment Act, 2015 shall apply in relation to arbitral proceedings commenced on or after 23.10.2015. Indeed, the judgment itself set aside the order appointing the arbitrator, which was an order dated 27.01.2016, by which the Managing Director of the respondent nominated a former Judge of this Court as sole arbitrator in terms of clause 33(d) of the Purchase Order dated 10.05.2014. It will be noticed that the facts in the present case are somewhat similar. The APO itself is of the year 2014, whereas the appointment by the Managing Director is after the Amendment Act, 2015, just as in the case of TRF Ltd. (supra). Considering that the

appointment in the case of TRF Ltd. (supra) of a retired Judge of this Court was set aside as being non-est in law, the appointment of Shri Khan in the present case must follow suit."

27) Similar such view was taken by the Hon'ble Supreme

Court in HRD Corporation case [cited 3rd supra], wherein, the

court categorically held that as the ineligibility goes to the root of

the appointment, Section 12(5) read with the Seventh Schedule

makes it clear that if the arbitrator falls in any one of the

categories specified in the Seventh Schedule, he becomes

"ineligible" to act as arbitrator. Once he becomes ineligible, it is

clear that, under Section 14(1)(a), he then becomes de jure

unable to perform his functions inasmuch as, in law, he is

regarded as "ineligible".

28) The law laid down by the Hon'ble Supreme Court in

Bharat Broadband Network Limited case [cited 1st supra],

TRF Ltd case [cited 2nd supra], and HRD Corporation case

[cited 3rd supra], makes it clear that once the authority / person

/ employee who falls under Seventh Schedule is ineligible to act

as an arbitrator, such ineligible person could not have appointed

another as an arbitrator, since, such appointment goes to the

root of the matter. The only exception is that parties "after

arising of the disputes" shall agree for such recourse, which is

lacking in the present case. Therefore, the appointment of the

2nd Respondent by the 1st Respondent is void by operation of law

in terms of Section 12(5) read with Seventh Schedule.

29) Accordingly, Civil Revision Petition No. 3142 of 2019 is

allowed consequently the order under challenge is set-aside

and the parties to the disputes are directed to take steps for

appointment of a fresh arbitrator or arbitrators in accordance

with law.

30) In view of the orders passed in Civil Revision Petition

No.3142 of 2019; Civil Revision Petition No. 3148 of 2019 also

stands allowed setting aside the extension of time granted to the

arbitrator to pass an award in C.A.O.P. No. 18 of 2019. No order

as to costs.

31) Consequently, miscellaneous petitions, if any, pending

shall stand closed.

_______________________________ JUSTICE C. PRAVEEN KUMAR

_______________________________ JUSTICE B. KRISHNA MOHAN Date: 02/09/2021.

Note: LR copy to be marked.

SM.

THE HON'BLE SRI JUSTICE C. PRAVEEN KUMAR AND THE HON'BLE SRI JUSTICE B. KRISHNA MOHAN

Civil Revision Petition No. 3142 of 2019

And Civil Revision Petition No. 3148 of 2019 (Per Hon'ble Sri Justice C.Praveen Kumar)

Date: 02/09/2021

S.M.