Integro Finserv Private Limited vs Vineet Singh Construction Private ...
2024 Latest Caselaw 1359 Bom

Bombay High Court

Integro Finserv Private Limited vs Vineet Singh Construction Private ... on 19 January, 2024

Author: Bharati Dangre

Bench: Bharati Dangre

2024:BHC-OS:2352

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                         IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                                ORDINARY ORIGINAL CIVIL JURISDICTION
                        ARBITRATION APPLICATION (L) NO.14170 OF 2023
                                                    WITH
                        ARBITRATION APPLICATION (L) NO.14177 OF 2023
                                                    WITH
                        ARBITRATION APPLICATION (L) NO.14180 OF 2023


               Integro Finserv Private Limited                 ..     Applicant
                                        Versus
               Vineet Singh Construction Private               ..     Respondents
               Limited & Ors.


                                                         ...

               Mr.Rohan Kelkar with Aaushi Doshi and Neeli Sandesana i/b
               DS law for the Applicant in all the Applications.
               Mr.D.Banerjee with Neha Achliya i/b Ketan Mutha i/b Sapana
               Rachure for the Respondent Nos.1 and 2 in all the
               Applications.
                                                         ...

                                           CORAM: BHARATI DANGRE, J.

                         RESERVED ON   : 11th JANUARY, 2024
                         PRONOUNCED ON : 19th JANUARY, 2024



               JUDGMENT :

-

1. The three Applications are fled by the Applicant, Integro

Finserv Private Limited, an NBFC, who vide Deed of M.M.Salgaonkar

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Assignment dated 16/02/2022, was assigned the entire

outstanding loans/debt against the Respondents, together with

future interest on the receivables, including the underlying

security interest, created thereof and all the rights with

respect to the Loan Hypothecation Agreement by CFM Asset

Reconstruction Private Limited, an assignee from L & T

Finance Limited (for short, "L & T Finance"), vide Deed of

Assignment dated 26/06/2019.

Respondent No.1 availed the loans from L & T Finance

under Loan-cum-Hypothecation Agreement dated 12/03/2012,

which contained an arbitration clause and as such on

14/10/2013, L & T Finance invoked arbitration and appointed

an Arbitrator unilaterally.

2. On 26/09/2022, Integro applied for its substitution in

place of L & T Finance in the arbitral proceedings.

3. In the present Application, purportedly fled under

Section 14 read with Section 11 read with Section 15 of the

Arbitration and Conciliation Act, 1996 (for short, "the Act")

Integro, seeks appointment of a sole Arbitrator/substituted

Arbitrator to adjudicate the disputes, differences and claims

between the parties. The Application so fled, has impleaded

the borrower - M/s. Vinit Singh Construction Private Limited M.M.Salgaonkar

3/29 ARBPL-14170-23+2.odt

and the Guarantor - Mr.Vinit Singh s/o Sunidh Singh as the

Respondents.

The Application is premised on the background fact, that

pursuant to the Loan-cum-Hypothecation Agreement dated

12/03/2012, the Respondents hypothecated the assets in

favour of L & T Finance and created sole and exclusive charge

over the said assets, as security for the due repayment of the

Loan and other amounts due and payable under the

Hypothecation Deed. Respondent No.1 created frst and

exclusive right on the assets and agreed to secure the loan

amount with additional/collateral security on other

encumbered assets, as and when demanded under the

Agreement. Similarly, Respondent No.2 executed personal

Guarantee in terms of the Deed of Guarantee dated

12/03/2012, in his personal and individual capacity.

4. After availing the loan facility, Respondent No.1

committed breach of the Loan Agreement, since it defaulted in

timely repayment of installments and L & T Finance took over

possession of the hypothecated assets and appropriated the

sale proceeds towards the outstanding dues, leaving defcit of

Rs.43,49,469/-, due and payable under the Loan-cum-

Hypothecation Agreement alongwith interest at the rate of M.M.Salgaonkar

4/29 ARBPL-14170-23+2.odt

36% from foreclosure till the date of payment.

L & T Finance terminated the Loan Agreement by

recalling the balance loan and the accrued charges and

enforced the security created under the Agreement, with a

liberty to sale the assets and called upon the Respondents to

make the payment of the outstanding amount, but the

Respondents neglected to make the payment.

5. As per the arbitration clause contained in the Loan-cum-

Hypothecation Agreement and the Deed of Guarantee, the

parties referred all the disputes, differences, claims etc. to

arbitration of a sole Arbitrator, appointed by L & T Finance i.e.

Advocate Bharat Jain.

6. Integro fled an interim application for substituting its

name in place of L & T Finance and issued a letter of

termination to the Arbitrator on 04/05/2023 on the ground

that the proceedings have not substantially progressed and

were at the stage of pleadings and, since, he was appointed

unilaterally, which is against the amended provisions of the

Act of 1996 and in the wake of the decision of the Apex Court

in the case of Perkins Eastman Architects DPC & Ors. Vs.

HSCC (India) Ltd.1.

1    AIR 2020 SC 59
M.M.Salgaonkar





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It is in these circumstances, the present Application is

fled.

7. I heard the learned counsel Mr.Rohan Kelkar for the

Applicant, who is opposed by learned counsel Mr.Banerjee

representing Respondent No.2 who has preliminary raised an

objection on the maintainability of the Application.

The objection raised is that neither Integro, the

Applicant nor its assignor, CFM Assets Reconstruction Pvt.

Ltd. is a party to the contract, which contains the arbitration

agreement and, therefore, it is not open for it to seek the relief

of substitution of the Arbitrator. On second count, the

objection raised in L & T Finance has invoked the arbitration

and appointed Advocate Bharat Jain as Arbitrator to

adjudicate the disputes and the said arbitration proceedings

are still pending before the Arbitral Tribunal and in fact, it is

only on 23/05/2022, CFM Assets Construction Pvt. Ltd., an

assignee from L & T Finance, has fled an application, seeking

substitution in its place.

It is also asserted that the proceedings before the

Arbitrator were fxed on 04/05/2023, when Integro sought

termination of the arbitrator, though not yet substituted in the

proceedings. The Arbitrator therefore directed the Applicants M.M.Salgaonkar

6/29 ARBPL-14170-23+2.odt

to fle proper application and fxed the proceedings, before him

on 07/06/2023.

The learned counsel Mr.Banerjee, submit that mandate

of an Arbitrator cannot be terminated by a stranger, i.e. one

who is not a party to the Arbitration Proceedings and

defnitely not by the Applicant whose application seeking

impleadment in the arbitral proceedings is still pending. He

would specifcally submit that under the garb of this

Application fled under Section 11(6) of the Act, the Applicant

is in fact attempting termination of the on-going proceedings

before the Tribunal, which in no case can be permitted.

8. On hearing the learned counsel for the Applicant and the

Respondents, two questions arise for my determination; (a)

Whether Integro, as an assignee, is entitled to continue the

arbitration proceedings, initiated by the original assignor, L &

T Finance against the Respondents and (b) whether the

unilateral appointment of an Arbitrator, effected prior to the

coming in force the amended Section, 12(5) w.e.f. 23/10/2015,

would affect the appointment and justify substitution of the

Arbitrator, on the ground of his de jure ineligibility to

continue.

9. Section 12 of the Act of 1996, which prescribes the M.M.Salgaonkar

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ground for challenge, contemplate that when a person is

approached in connection with his appointment as an

Arbitrator, he shall disclose in writing any circumstances,

such as the existence of 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

fnancial,business, professional or other kind, which is likely to

give rise to justifable doubts as to his independence or

impartiality. Sub-section (5), which was introduced w.e.f.

23/10/2015, reads thus :-

"(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 specifed in the Seventh Schedule shall be ineligible to be appointed as an arbitrator."

10. The issue as to whether sub-section (5) introduced in

Section 12 read with Schedule VII, will have prospective or

retrospective effect, has been the bone of contention before the

Apex Court time and again and this issue has been examined

with specifc reference to the facts of each case.

Mr. Kelkar and Mr. Banerjee have placed reliance upon a

catena of rulings from the Apex Court, but defnitely the

fndings rendered therein will have to be read on the facts, in

M.M.Salgaonkar

8/29 ARBPL-14170-23+2.odt

the background of which the law is laid down and, therefore, I

would prefer to refer to the line of decision in seriatim.

11. Upon the amendment being introduced in Section 12 by

amending Act 3 of 2016 w.e.f. 23-10-2015, which prohibits the

employee of one of the parties from being an Arbitrator, on the

premise that neutrality of the Arbitrator is the quint essence

of the proceedings.

In Board of Control for Cricket in India vs. Kochi Cricket

(P) Ltd.2, a Two-Judge Bench had an opportunity to consider

Section 26 of the Arbitration and Conciliation (Amendment)

Act, 2015 with reference to Sections 34 and 36, which was

amended by the Amending Act, and as regards, Section 34, it is

held that Applications u/s. 34 even in cases where arbitration

has commenced prior to 23/10/2015 i.e. date of coming into

force, the Amendment Act, 2015, would apply, since the

execution of a decree pertain to realm of procedure and it was

held that no substantive vested right in the judgment debtor to

resist the execution. Section 36, relating to execution of an

Award, attracting the provisions of Order 21 and Order 41

Rule 5 of CPC, was held to have a retrospective effect.

2    (2018) 6 SCC 287
M.M.Salgaonkar





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However, commenting upon Section 26, the general principle

of an Amending Act of being prospective in operation was

invoked in relation to (a) arbitral proceedings and (b) court

proceedings in relation thereto.

Upon tracing the legislative history and the background

in introducing the amendment in the Arbitration and

Conciliation Act 1996, the relevant observations of Their

Lordships are to be found in paragraphs 36 to 38, which read

thus :-

"36. All the learned counsel have agreed, and this Court has found, on a reading of Section 26, that the provision is indeed in two parts. The frst part refers to the Amendment Act not applying to certain proceedings, whereas the second party affrmatively applied the Amendment Act to certain proceedings. The question is what exactly is contained in both parts. The two parts are separated by the word "but", which also shows that the two parts are separate and distinct. However, Shri Viswanathan has argued that the expression "but" means only that there is an emphatic repetition of the frst part of Section 26 in the second part of the said section. For this, he relied upon Concise Oxford Dictionary on Current English, which states :

"introducing emphatic repetition; defnitely (wanted to see nobody, but nobody)."

Quite obviously, the context of the word "but" in Section 26 cannot bear the aforesaid meaning, but serves only to separate the two distinct parts of Section 26.

37. What will be noticed, so far as the frst party is concerned, which states-

"26. Act not to apply to pending arbitral proceedings.- Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of Section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree....."

is that : (1) "the arbitral proceedings" and their commencement is mentioned in the context of Section 21 of the principal Act ; (2) the expression used is "to" and not "in relation to"; and (3) parties may M.M.Salgaonkar

10/29 ARBPL-14170-23+2.odt

otherwise agree. So far as the second part of Section 26 is concerned, namely, the part which reads, "...but this Act shall apply in relation to arbitral proceedings commenced on after the date of commencement of this "Act" makes it clear that the expression "in relation to" is used; and the expression "the" arbitral proceedings and "in accordance with the provisions of Section 21 of the principal Act" is conspicuous by its absence.

38. That the expression "the arbitral proceedings" refers to proceedings before an Arbitral Tribunal is clear from the heading of Chapter V of the 1996 Act, which reads as follows :

"Conduct of arbitral proceedings"

The entire chapter consists of Sections 18 to 27 dealing with the conduct of arbitral proceedings before an Arbitral Tribunal. What is also important to notice is that these proceedings alone are referred to, the expression "to" as contrasted with the expression "in relation to" making this clear. Also, the reference to Section 21 of the 1996 Act, which appears in Chapter V, and which speaks of the arbitral proceedings commencing on the date on which a request for a dispute to be referred to arbitration is received by the respondent, would also make it clear that it is these proceedings, and no others, that form the subject-matter of the frst part of Section 26. Also, since the conduct of arbitral proceedings is largely procedural in nature, parties may "otherwise agree" and apply the Amendment Act to arbitral proceedings that have commenced before the Amendment Act came into force. In stark contrast to the frst part of Section 26 is the second part, where the Amendment Act is made applicable "in relation to" arbitral proceedings which commenced on or after the date of commencement of the Amendment Act. What is conspicuous by its absence in the second part is any reference to Section 21 of the 1996 Act. Whereas the frst refers only to arbitral proceedings before an Arbitral Tribunal, the second part refers to court proceedings "in relation to" arbitral proceedings, and it is the commencement of these court proceedings that is referred to in the second part of Section 26, as the words "in relation to the arbitral proceedings" in the second part are not controlled by the application of Section 21 of the 1996 Act."

12. It is emphatically held that the frst part of Section 26,

couched in the negative form is only to state, that the

Amendment Act will apply even to arbitral proceedings

commenced before the amendment, if parties otherwise agree.

M.M.Salgaonkar





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The intention of the legislature was clearly discerned and the

pertinent observation in this regard is refected from the

following pronouncement:-

"The scheme of Section 26 is thus clear; that the Amendment Act is prospective in nature, and will apply to those arbitral proceedings that are commenced, as understood by Section 21 of the Principal Act, on or after the Amendment Act, and to court proceedings which have commenced on or after the Amendment Act came into force."

It is in the context of Section 36, it is held that under

Section 36, both pre and post amendment, such Award shall be

"enforced in accordance with the provisions of the Code of

Civil Procedure" and being a procedural provision, it was held

that the context of Section 36 is that the expression "has been"

would refer to Section 34 Petitions fled before the

commencement of the Amendment Act and would indeed

apply in its substituted form, even to such Petitions.

13. In the case of Rajasthan Small Industries Corporation

Limited Vs. Ganesh Containers Movers Syndicate 3, the

question of the Amendment Act of 2015 once again surfaced

with reference to Sections 11(6), 14 and 15(2).

Following the law laid down in the case of Kochi Cricket

(P) Ltd. (supra), in the backdrop facts, that the agreement

between the parties was entered into on 28/01/2000 and the

3 (2019) 3 SCC 282 M.M.Salgaonkar

12/29 ARBPL-14170-23+2.odt

arbitration proceedings commenced way back in 2009, and in

absence of anything to suggest that the parties had agreed that

the provisions of the new Act shall apply in relation to the

arbitral proceedings, it was held that the Respondent could not

invoke Section 12(5).

The question which fell for consideration, as to whether,

in the light of Section 12, as amended by the Amendment Act,

the Managing Director who was appointed to act as an

Arbitrator has become ineligible, the conclusion, is to be found

in paragraphs 23 and 24, which read as under :-

"23. After the amendment to the Arbitration and Conciliation Act, 1996 in 2015, Section 12(5) prohibits the employee of one of the parties from being an arbitrator. In the present case, the agreement between the parties was entered into on 28-1-2000 and the arbitration proceedings commenced way back in 2009 and thus, the respondent cannot invoke Section 12(5) of the Arbitration and Conciliation (Amendment) Act 2015 . As per Section 26 of the Amendment Act, the provisions of the Amendment Act, 2015 shall not apply to the arbitral proceedings commenced in accordance with the provisions of Section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree.

24. In BCCI v. Kochi Cricket (P) Ltd., this Court held that the provisions of the Amendment Act, 2015 (with effect from 23-10-2015) cannot have retrospective operation in the arbitral proceedings already commenced unless the parties otherwise agree. In the present case, there is nothing to suggest that the parties have agreed that the provisions of the new Act shall apply in relation to the arbitral proceedings."

14. In an attempt to distinguish the judgment on facts, Mr.

Rohan Kelkar would urge, that the clause, which was

considered by the Apex Court in the said decision was quite

M.M.Salgaonkar

13/29 ARBPL-14170-23+2.odt

distinct from the clause in the present case and according to

him, clause No. 4.20.1 of Schedule IV, which provided for

arbitration, and which is found to be reproduced in paragraph

11 of the Law Report, it was a simplicitor clause, of referring

all disputes and differences arising out of or in any way

concerning to the contract, to the Managing Director

himself/herself or his or her nominees for the sole arbitration,

with fnality and binding effect being attached to the same.

However, according to him, the clause is distinct from the one,

which was considered in Rajasthan Small Industries

Corporation Ltd. (supra) as clause 18.1 of the subject

agreement contemplate reference of disputes to the sole

Arbitration, to be appointed by the lender according to the

provisions of the Arbitration and Conciliation Act, 1996 and

the rules thereunder and the peculiar feature of the clause,

which is distinguishable from all the cases, cited, before the

Court, according to Mr. Kelkar, is "any amendment thereto

from time to time".

Laying his emphasis on this part of the clause, it is the

argument of Mr.Kelkar that the arbitration clause itself

contemplated that the arbitration shall be conducted

according to the provisions of the Act of 1996 as amended M.M.Salgaonkar

14/29 ARBPL-14170-23+2.odt

from time to time, necessarily making the arbitration

proceedings subject to the Amendment Act of 2015 amending

Section 12(5) w.e.f. 23/10/2015, which has now created an

embargo upon any person, whose relationship with the parties

or counsel, or the subject matter of the dispute falls under any

of the categories specifed in Schedule VII and rendering him

ineligible to be appointed as Abitrator, notwithstanding any

prior agreement.

Mr. Kelkar has, therefore, submitted, that in Rajasthan

Small Industries Corporation Ltd. (supra), the Court had held

that an Arbitrator appointed prior to the amending Act coming

into force shall not suffer ineligibility after its coming into

force.

Another decision relied upon by Mr.Kelkar is in the case

of Aravali Power Company Private Limited Vs. Era Infra

Engineering Limited4 and even in this decision, the arbitration

clause, according to Mr. Kelkar, is not similar to the one, with

which I am concerned, but still a conclusion is drawn that in

the cases governed by the Act of 1996, after the Amendment

Act coming into force, if the arbitration clause falls foul of the

amended provisions, the appointment of the arbitrator, even if

4 (2017) 15 SCC 32 M.M.Salgaonkar

15/29 ARBPL-14170-23+2.odt

apparently in conformity with the arbitration clause in the

agreement, would be illegal and thus the Court would be within

its powers to appoint such arbitrator(s) as may be permissible.

15. Subsequent to the decision, in the case of Rajasthan

Small Industries Corporation Limited (supra), another

decision involving Section 12(5) and its effect in the backdrop

of Section 11(6) is in the case of S.P. Singla Constructions

Private Limited Vs. State of Himachal Pradesh & Anr. 5, which

arose in the background fact, where a Construction Work

Contract, was entered between the parties on 19/12/2006 and

upon completion of the work, with the extension granted,

disputes arose between the parties, as regards the payment.

An appointment of an Arbitrator was sought vide letter

dated 18/10/2013 and the Chief Engineer, H.P. PWD appointed

the "Superintendent Engineer, Arbitration Circle, H.P. PWD,

Solan" as the Arbitrator on 30/10/2013, the appointment was

made in terms of Clause (65) of the General Conditions of

contract. The Arbitrator entered reference on 11/11/2013 and

as the facts reveal, the Appellant either remained absent from

the proceedings or sought adjournments on the ground that he

intended to challenge the appointment of the Arbitrator. Since

5 (2019) 2 SCC 488 M.M.Salgaonkar

16/29 ARBPL-14170-23+2.odt

no statement of claim was fled by the appellant, the

arbitration proceedings were terminated on 06/08/2014,

under Section 25(a) of the Arbitration and Conciliation Act,

1996.

The appellant then fled a petition under Section 11(6) of

the Act of 1996 before the High Court, seeking appointment of

an independent Arbitrator and the High Court, by holding that

the remedy open to the appellant was a petition under Section

13 of the Act, held that the appointment of the Arbitrator,

being in terms of Clause (65) of the agreement, Section 11(6)

of the Act cannot be invoked and even the appointment of the

Arbitrator could not be challenged by an application under

Section 11(6) and, the arbitration petition was dismissed.

Once again the Apex Court was confronted with identical

arguments on behalf of the appellant that the Arbitrator

appointed by offce is an employee in services of H.P. PWD

which, Section 12(5) bars at the threshold.

The State relied upon the decision in the case of Kochi

Cricket (P) Ltd.(supra), by submitting that the amended

provision shall not apply to the arbitral proceedings

commenced prior to Act of 2015, unless the parties otherwise

agree.

M.M.Salgaonkar





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Worth it to note that Clause (65) of general conditions of

contract is on similar lines with the contract, which I am

dealing and it reads thus :-

"Subject as aforesaid the provision of the Arbitration Act, 1940 or any statutory modifcation or re-enactment thereof and the rules made thereunder and for the time being shall apply to arbitration proceeding under this clause"

16. Repelling the contention advanced on behalf of the

applicant/contractor, that the Arbitrator is an employee in

service of H.P. PWD and by referring to the precedents, where

the Government contract, contemplates an employee of the

Department to be a sole Arbitrator, is held neither to be void

nor enforceable, it was concluded that merely because a named

Arbitrator is an employee of one of the parties is not by itself,

ipso facto, a ground to raise a presumption of bias or lack of

independence on his part.

As regards the specifc wordings in the clause quoted

above, the attention of the Apex Court was drawn to a decision

of the Delhi High Court in the case of Ratna Infrastructure

Projects (P) Ltd. Vs. Meja Urja Nigam (P) Ltd. 6, wherein

interpreting the similar words in the contract, Delhi High

Court held that these words satisfy the requirement of Section

26 (Amending Act of 2015), of there being an agreement 6 2017 SCC OnLine Del 7808 M.M.Salgaonkar

18/29 ARBPL-14170-23+2.odt

between the parties that the Act as amended w.e.f. 23/10/2015

will apply and a fnding was rendered that once the

amendment to the clause stated that all statutory

modifcations and re-enactments would apply, then there is no

need for further agreement in that respect after 23/10/2015.

However, Their Lordships refrained from examining the

correctness the view adopted by Delhi High Court, but

reiterated that as per Section 26 of the Arbitration and

Conciliation (Amendment) Act, 2015, the provisions of the

amended 2015 Act shall not apply to the arbitral proceedings

commenced in accordance with the provisions of Section 21 of

the Principal Act, before the commencement of the Amending

Act unless the parties otherwise agree.

In the facts and circumstances of the case, in the wake of

the proviso in clause (65) of the general conditions, it was

specifcally held that the arbitration proceedings commenced

way back in 2013, much prior to coming into force of the

amended Act and hence the provisions of the amended Act

cannot be invoked.

17. One more illustrative pronouncement on this very aspect

is the decision of the Apex Court in the case of Union of India

M.M.Salgaonkar

19/29 ARBPL-14170-23+2.odt

Vs. Parmar Construction Company7. Once again it is

emphatically held that a conjoint reading of Section 21 of the

Act read with Section 26 of the Amendment Act, leaves no

manner of doubt that the provisions of the Amendment Act, of

2015 shall not apply to such of the arbitral proceedings which

have commenced in terms of the provisions of Section 21 of the

Principal Act, unless the parties otherwise agree.

In the case before the Apex Court, the request by the

Respondent/Contractor for referring the dispute to the

arbitration was made and received by the Appellant much

before the Amendment Act, 2015 came into force and, hence, it

was held that the High Court was not justifed in appointing an

independent Arbitrator, without resorting to the procedure

prescribed under clause 64(3) of the Contract under the

inbuilt mechanism as agreed by the parties. By specifcally

referring to the various aspects of Railway Contract and by

setting aside the appointment of the independent Arbitrators,

the General Manager of the Railways was directed to appoint

the Arbitrator in terms of clause 64(3) of the agreement.

18. The latest decision in the case of Shree Vishnu

Constructions Vs. Engineer in Chief Military Engineering

7 (2019) 15 SCC 682 M.M.Salgaonkar

20/29 ARBPL-14170-23+2.odt

Service & Ors.8 has considered the rulings in the case of

Pradeep Vinod and Parmar Constitution Company and on

noticing the ambit of the power of the 2015 Amendment Act, in

the backdrop of Section 11(6-A) confning the power of the

court in examining the existence of the arbitration agreement,

it is clearly pronounced that in a case, where notice invoking

arbitration is issued prior to coming into force of the 2015

Amendment Act, but the application under Section 11 for the

appointment of an Arbitrator is made, after it has come into

force then the provisions of the 1996 Act, as they stood prior

to coming into force of the 2015 Amendment Act shall be

applicable Act.

The said verdict also refers to the earlier decision, in

case of S.P. Singla Constructions Private Limited (supra) and

the decision in Kochi Cricket (P) Ltd. (supra), is clarifed, to

have understood and construed with respect to the court

proceedings, which had commenced on or after the Amending

Act came into force, namely, the proceedings under Sections

34 and 36.

The position of law on this point is put to rest with the

following observations :-

8 2023(8) SCC 329 M.M.Salgaonkar

21/29 ARBPL-14170-23+2.odt

"23. It is required to be noted that in BCCI, application under Section 11(6) was not the subject-matter and there was no issue before the Court that even in a case where the notice invoking the arbitration is issued prior to the 2015 Amendment Act, but the application under Section 11(6) is fled post Amendment Act, 2015, what will be the position and whether the old Act will be applicable or the amended Act. On the other hand, the decisions in Parmar Construction Co. is directly on the point, namely, the application under Section 11(6) of the Act.

24. In Parmar Construction Co., it is specifcally observed and held that in a case where notice invoking arbitration is issued prior to the 2015 Amendment Act and the application under Section 11(6) is fled post amendment, as per Section 21 of the principal Act, the date of issuance of the notice invoking arbitration shall be considered as commencement of the arbitration proceedings and therefore as per Section 26 of the 2015 Amendment Act, the Amended Act, 2015 shall not be applicable and the parties shall be governed by the pre-Amendment Act, 2015.

25. The submission on behalf of the appellant, as above, cannot be accepted for the simple reason that this Court in BCCI was considering the Court proceedings under Sections 34 and 36. To that, this Court interpreted Section 26 in paras 37 to 39, reproduced hereinabove, and held that the Amendment Act is prospective in nature, and will apply to those arbitral proceedings that are commenced as understood by Section 21 of the principal Act, on or after the 2015 Amendment Act and to Court proceedings which have commenced on or after the 2015 Amendment Act came into force. Therefore, any observations made by this Court in paras 37 to 39 in BCCI shall be understood and construed with respect to Court proceedings which have commenced on or after the Amendment Act coming into force, namely, the proceedings under Sections 34 and 36. Therefore, the decisions of this Court in Parmar Construction Co. and Pradeep Vinod Construction Co. cannot be said to be per incuriam and/or in confict with the decision of this Court in BCСI.

26. As observed hereinabove, in Parmar Construction Co. which is directly on the point, it is specifcally observed and held that the 2015 Amendment Act, which came into force w.e.f. 23-10-2015 shall not apply to the arbitral proceedings which are commenced in accordance with the provisions of Section 21 of the principal Act, 1996 before the coming into force of the 2015 Amendment Act, unless parties otherwise agree (para 27). Similar view has been expressed in S.P. Singla Constructions."

M.M.Salgaonkar

22/29 ARBPL-14170-23+2.odt

19. Recently the decision in the case of Ellora Paper Mills

Limited Vs. State of Madhya Pradesh9, the Apex Court once

again pronounced upon the effect of the amended provision,

Section 12(5) read with Seventh Schedule and the issue

involved in the Appeal was whether the Stationary Purchase

Committee-Arbitral Tribunal consisting of offcers of the

respondent has lost the mandate, considering Section 12(5)

read with Seventh Schedule of the Act of 1996.

Noticing the fact that the constitution of the Arbitral

Tribunal was in the year 2001, but no steps were taken in the

arbitration proceedings, as from 04/05/2001 to 24/01/2017,

there was a stay granted by the High Court and it was only in

the year 2019, the application was preferred before the High

Court, invoking Section 14 r/w Sections 11 and 15 of the Act of

1996, seeking termination of the mandate of the originally

constituted Arbitral Tribunal and to appoint new Arbitrator,

this aspect was specifcally taken into consideration, by

drawing an inference, that technically it cannot be said that

the arbitration proceedings before the Arbitral Tribunal had

commenced and in these facts, pronouncing upon the

principle of neutrality of the Arbitrator, which was the

guiding factor in introduction of sub-section (5) of Section 12, 9 (2022) 3 SCC 1 M.M.Salgaonkar

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a conclusion was reached, that the order passed by the High

Court was contrary to the law laid down in the case of TRF Ltd.

Vs. Energo Engineering Projects Ltd.10 and in the case of

Bharat Broadband Network Ltd. Vs. United Telecoms Ltd.11

and a fnding is returned, that the members of the Arbitral

Tribunal, comprising of high ranking offcers of the

Government, had lost mandate by operation of law and a fresh

Arbitrator was appointed, by setting aside the judgment of the

High Court.

Worth it to note that in Ellora Paper Mills Limited

(supra), the facts were somehow peculiar as though the

Tribunal was constituted in the year 2001, till the year 2019,

when the application was taken out seeking substitution of the

Arbitrator, no progress had taken place and the proceedings

before the Arbitral Tribunal had not commenced.

20. There can be no second opinion on the universally

accepted principle that any quasi-judicial process, including

arbitration process, must adhere to the principles of natural

justice and in the context of arbitration, neutrality of the

Arbitrator, their independence and impartiality, is critical to

the entire process and the amendment introduced in the

10 (2017) 8 SCC 377 11 2017 SCC OnLine Del 11905 M.M.Salgaonkar

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Arbitration Act of 1996 was based on the recognition of the

Law Commission's report, which specifcally focused on the

issue of "neutrality and impartiality of arbitrator", as the

likelihood of the Arbitrator, in any manner not acting

independently would render him ineligible to conduct

arbitration. The genesis underlying the process of Arbitration

is well acknowledged and even though the Arbitrator is

appointed in terms of the contract and by the parties to the

contract, amongst the parties, he must act independently and

impartially.

21. The only question, which is posed for consideration

before me is, whether an Arbitrator, who is appointed prior to

the Amendment Act 2015, coming into force where the

arbitration proceedings have already commenced, whether

such an Arbitrator would incur ineligibility only in the wake of

provisions introduced and such a person who may be either

unilaterally appointed or who would fall within the ambit of

Schedule VII, is forbidden from continuing as an Arbitrator

and deserve to be substituted.

22. The Arbitration and Conciliation (Amendment) Act, 2015

is deemed to have come into force from 23/10/2015 and the

amending Act, apart from bringing about the changes in M.M.Salgaonkar

25/29 ARBPL-14170-23+2.odt

various provisions, sub-section (1) is substituted and sub-

section(5) is added to the following effect :-

"(i) for sub-section (1), the following sub-section shall be substituted, namely :-

(1) Where 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 fnancial, business, professional or other kind, which is likely to give rise to justifable doubts as to his independence or impartiality; and

(b) which are likely to affect his ability to devote suffcient time to the arbitration and in particularly 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 justifable doubts as to the independence or impartiality of an Arbitrator.

Explanation 2.- The disclosure shall be made by such person in the form specifed in the Sixth Schedule";

(ii) after sub-section (4), the following sub-section 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 specifed 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."

23. The Amending Act also inserted Schedule IV, V, VI and

VII, the Vth Schedule enlisting the grounds, giving rise to

justifable doubts, as to the independence or impartiality of the

Arbitrators and the VIIth Schedule enlisting the Arbitrator's M.M.Salgaonkar

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relationship of the parties with the counsel, which would incur

a disqualifcation and prevent him from acting as an Arbitrator

and by virtue of it, he is deemed to be unable to discharge his

functions as an Arbitrator, independently and with the adage

of neutrality. However Section 26 of the Amendment Act thus

specifcally provided thus: -

"26. Act not to apply to pending arbitral proceedings. - Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act."

The above provision in form of Section 26 of the

Amendment Act, is clearly indicative that the provisions

sought to be introduced by the Amendment Act shall not apply

to the arbitration proceedings that have commenced in

accordance with the provision of Section 21 of the principal

Act, before the commencement of the amending Act.

24. In light of the above and the series of decisions, to which

a reference is made, I see no diffculty in arriving at a

conclusion that the Application preferred by Integro Finserv

Private Limited, under Section 11 of the Arbitration and

Conciliation Act, seeking appointment of an

M.M.Salgaonkar

27/29 ARBPL-14170-23+2.odt

Arbitrator/substituted Arbitrator, by relying upon Section

12(5) do not deserve any consideration, as the facts of the case

clearly reveal that the Loan-cum-Hypothecation Agreement

was entered by the Defendants/Respondents in favour of L & T

Finance on 29/05/2012 and even the Respondent No.2,

executed a Deed of Guarantee.

L & T Finance Co. was compelled to terminate the Loan

Agreement by recalling the loan balance, with accrued charges

and enforce the security created under the said Agreement on

05/10/2013 and in the wake of the arbitration clause in the

Loan-Cum-Hypothecated Agreement and Deed of Guarantee,

appointed an Advocate as a sole Arbitrator to adjudicate the

disputes.

The arbitration proceedings are pending before the

Arbitrator, on he having entered the reference and as could be

seen from the exhibits annexed with the reply fled by the

Respondents, that the assignor of the present Applicant, CFM

ARC Private Limited has taken out an application before the

Arbitrator, seeking its substitution, in the arbitration

proceedings, initialled by L & T Finance, in the wake of the

Deed of Assignment dated 26/06/2019. At a subsequent point

of time i.e. on 08/08/2022, CFM ARC Private Limited, sought M.M.Salgaonkar

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withdrawal of the Application, indicating that on 16/02/2022,

it has assigned its debt in favour of Integro the Applicant and,

hence, now Integro is entitled to all receivable arising under

the Loan Agreement and other transaction documents.

Apart from this, an application is also fled by Integro

seeking its substitution as claimant, in the arbitration

proceedings in place of L & T Finance and for permitting it to

continue with the said proceedings.

25. As far as the aforesaid applications, which are pending

before the Arbitrator are concerned, in the wake of the view

taken by me in the case of M/s Siemens Factoring Pvt. Ltd. Vs.

Future Enterprises Pvt. Ltd. (CARAP/174/22 decided on

01/03/2023), I fnd no merit in the said objection and leave it

open to the Arbitrator to permit the substitution as per law.

However, for the reasons recorded above, since the

appointment of an Arbitrator or his substitution on the

ground, of his ineligibility, by applying Section 12(5)

retrospectively, as the Arbitrator has entered reference prior

to the Amendment Act and the proceedings are ongoing before

him, I am not inclined to grant the relief of substituting him on

the ground of his de jure ineligiblity, in the light of the

amended provison.

M.M.Salgaonkar





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Necessarily the Arbitration Applications are dismissed

for want of any merits and substance.

The Arbitration shall continue and conclude the

references before him expeditiously.

No order as to costs.

( SMT. BHARATI DANGRE, J.)

M.M.Salgaonkar