Bombay High Court
Dipl Ingenieure Rainer And Oliver Puls ... vs Force Motors Limited India on 10 May, 2025
Author: Madhav J. Jamdar
Bench: Madhav J. Jamdar
2025:BHC-OS:8023
11-CARBP-244-2024.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMMERCIAL ARBITRATION PETITION NO.244 OF 2024
Dipl.-Ingenieure Rainer & ...Petitioner
Oliver PULS GmbH (Germany)
Versus
Force Motors Limited (India) & Anr. ...Respondents
_______________________________________________________________
Mr. Rajiv Kumar, Senior Advocate a/w Ms. Sneha Phene, Mr. J. Kapadia,
Mr. Keshav K. Tripathi, Mr. Suman J. Khaitan, Mr. Vikas Kumar, Mr.
Satymev Sabarn, & Ms. Surabhi Chhabra i/b Little & Co., for the
Petitioner.
Mr. Mustafa Doctor, Senior Advocate a/w Mr. Shrenik Gandhi & Ms.
Aishwaryajeeta Tawde i/b. Kanga & Co., for the Respondent No.1.
_______________________________________________________________
CORAM: MADHAV J. JAMDAR, J.
DATED: JANUARY 10, 2025
JUDGMENT:
1. Heard Mr. Rajiv Kumar, learned Senior Counsel for the Petitioner
and Mr. Mustafa Doctor, learned Senior Counsel for the Respondent
No.1.
I] RELIEFS SOUGHT IN COMMERCIAL ARBITRATION PETITION:
2. The Petitioner i.e. Original Respondent in the Arbitration
Proceeding bearing IGCCAC Case No.1/22 has by the present
Commercial Arbitration Petition filed under Sections 14 and 15 of the
Arbitration and Conciliation Act, 1996 ("said Act") inter alia sought the
following prayers :-
"(a) this Hon'ble Court passed appropriate orders and directions
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ordering that mandate of Mr. R.A. Shah - Ld Arbitrator in
IGCCAC Case No.001/2022 be terminated forthwith or on
on such terms and conditions as this Hon'ble Court may
deem fit and proper; and
(b) this Hon'ble Court be pleased to appoint a substitute
arbitrator under Section 15 of the Act in the arbitration
between the Petitioner and Respondent No.1 on such terms
as this Hon'ble Court may deem fit and proper; and
(c) this Hon'ble Court be pleased to direct removal of
Respondent No.2 from the arbitral proceedings with
direction to Respondent No.2 to refund all amounts paid by
the Petitioner to Respondent No.2 and substitute another
reputed arbitral institution in place of Respondent No.2 to
administer and manage the arbitral proceedings for
adjudication of the disputes and differences between the
Petitioner and the Respondent No.1;
OR
in the alternative allow conversion of the present arbitral
proceedings into ad hoc arbitral proceedings;"
(Emphasis added)
II] FACTUAL MATRIX:
3. Both the learned Senior Counsel have raised various contentions.
Before setting out the contentions raised by learned Senior Counsel and
consideration of the same, it is necessary to set out certain factual
aspects.
i. On 1st May 2019, a Technology Transfer Agreement ("TTA") was
executed between the Petitioner and Respondent No.1. The said
Agreement inter alia concerns purchase of a special technology
for electrification of vehicles. The said Agreement contains an
arbitration Clause appointing the Respondent No.2 - Indo-
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German Chambers of Commerce ("IGCC") as the Institution for
conducting the arbitration. The said arbitration clause reads as
under :-
"18) ARTICLE 18. APPLICABLE LAW AND
COMPETENT JURISDICTION
Any dispute, difference or claim arising out of, or in
relation to this contract, including the construction,
validity, performance or breach thereof, shall be referred
to the Indo-German Chamber of Commerce Mumbai, for
resolution in accordance with the Rules of Arbitration of
the Chamber (arbitration rules), then in force. The
award (decision) of the arbitral tribunal constituted
under the arbitration rules, shall be final and binding on
the parties hereto.
The contract is governed by the laws of India."
The arbitration Clause provides for arbitration under the Rules of
the Respondent No.2 - IGCC.
ii. On 8th February 2022, Respondent No.1 made the reference to
arbitration.
iii. On 19th May 2022, Respondent No.1 nominated Mr. R. A. Shah
as an Arbitrator.
iv. On 19th May 2022, Mr. R. A. Shah furnished a declaration under
the provisions of Section 12(1)(b) r/w the Sixth Schedule of the
said Act (Page Nos.352 - 355). The relevant portion of the
declaration furnished by Mr. R. A. Shah, reads as under :-
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Prior experience (including : Please see the Profile forwarded
experience with Arbitrations) separately.
Number of ongoing : None.
Arbitrations
Circumstances disclosing any : I have no financial, business,
past or present relationship professional or other kind of
with or interest in any of the relation, either in the past or
Parties or in relation to the present, in relation to the
subject-matter in dispute, subject matter of dispute
whether financial, business, between Force Motors Limited,
professional or other kind, Pune, the Claimant, and Dipl-
which is likely to give rise to Ingenieure Rainer & Oliver
justifiable doubts as to your PULS GmbH, Germany, the
independence or impartiality Respondent, or interest of any
(List Out) of these Parties in relation to
the subject matter.
Circumstances which are : None
likely to affect your ability to
devote sufficient time to the
Arbitration and in particular
your ability to finish the
entire Arbitration within
twelve months (List Out)
The relevant part of said Profile is as follows :-
"Mr. R. A. Shah is also a Member of Managing
Committees of various Commerce & Industry
Associations such as Bombay Chamber of Commerce &
Industry and Indo-German Chamber of Commerce. He is
the Chairman/Director of various public listed companies
and Chairman/member of Audit Committees. He has
served on several renowned public listed companies
engaged in the field of pharmaceuticals, chemicals and
fertilizers, textiles, real estate, FMCG, etc, for more than
three decades and in case of few others for over half a
century. Mr. Shah has acted as Counsel and Arbitrator in
international arbitration proceedings."
(Emphasis added)
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v. Clause 7 of the Indo-German Chamber of Commerce Arbitration
Centre - Rules for Arbitration ("Indo-German Arbitration Rules")
titled as "Qualifications of Arbitrators" also provides that
disclosure has to be given by the Arbitrator. Accordingly, Mr. R. A.
Shah, learned Arbitrator has submitted the declaration as per the
provisions of Clause 7 of the Indo-German Arbitration Rules. The
said declaration dated 19th May 2022 furnished as per Clause 7
of the Indo-German Arbitration Rules is as under :-
"1) There are no circumstances, which may create
doubt and/or give rise to justifiable doubts, about
my impartiality or independence, in respect of the
arbitral proceedings initiated by and between Force
Motors Limited, Pune, as the Claimant and Dipl-
Ingenieure Rainer & Oliver PULS GmbH, as the
Respondent.
2) I confirm that I have not been appointed as an
arbitrator by any of the Parties or their affiliates,
within the last three years.
3) I confirm that I have not been appointed as a
counsel, for representing, advising or represented or
advised any of the above Parties to the said arbitral
proceedings in respect of any dispute (including an
unrelated dispute).
4) I further confirm that, I have no direct or indirect
interest in the dispute between the above referred
Parties."
(Emphasis added)
vi. On 20th May 2022, the Petitioner nominated Senior Advocate Mr.
Ciccu Mukhopadhaya as its Nominee Arbitrator.
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vii. By letter dated 14th November 2022, Mr. R. A. Shah
communicated the Petitioner and Respondent No.1 that there was
no consensus in respect of the appointment of the Presiding
Arbitrator.
viii. On 5th January 2023, the Supreme Court appointed Mr. Justice L.
Nageswara Rao, Former Judge of the Supreme Court as Presiding
Arbitrator.
ix. On 13th February 2023, the Arbitral Tribunal held its first hearing
and passed a procedural Order for filing pleadings.
x. On 8th May 2023, the Respondent No.1 filed its Statement of
Claim.
xi. It is the case of the Petitioner that thereafter the Petitioner
contacted a Lawyer for drafting/preparing the Statement of
Defence. At that time, in or about mid-July 2023, the Petitioner
learnt of the association between Mr. R. A. Shah, Mr. Firodia and
Ms. Sonia Parshar.
xii. On 27th July 2023, the Petitioner filed an Application in the said
matter of Arbitration between the Respondent as claimant and
the Petitioner as Respondent under Section 16 read with Sections
12(3)(a), 13 and 18 of the said Act. In the said Application in
Paragraph No.17 contentions are raised that Mr. R. A. Shah,
learned Arbitrator has not made complete disclosure and certain
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material facts which the Petitioner has come to know which give
rise to grave likelihood of bias and partiality. The relevant part of
said Application is in Paragraph Nos. 17 and 18, which read as
under :-
"17. It is stated that recently during the past week while
internally preparing with its team in Germany for
briefing the Indian lawyers for drafting the Statement of
Defense and the Counter Claim, the Respondent noticed,
for the first time, certain material facts which give rise to
grave likelihood of bias and partiality, including:
(i) the fact that Dr. Abhaykumar N. Firodia, the
Promoter and Chairman of the board of directors of
the Claimant, (who is also the signatory to the TTA
on behalf of the Claimant and played an active role
in negotiation of the TTA and is a key witness to the
present proceedings), has been a member of the
Committee of IGCC since 1995, and has also served
as President of IGCC;
(ii) Mr. R.A. Shah, Ld. Arbitrator nominated by the
Claimant, has also been a member of the Committee
of IGCC since 1993 (although the Respondent was
informed about Mr. R.A. Shah being a member, the
fact that he shared that position with Dr.
Abhaykumar N. Firodia was never disclosed to the
Respondent);
(iii) Both Dr. Abhaykumar N. Firodia, the Promoter and
Chairman of the board of directors of the Claimant,
and Mr. R.A. Shah, Learned Arbitrator, are even
presently members of the Committee of IGCC for
the year 2022-23;
(iv) Ms. Sonia Prashar, Deputy Director General of
IGCC, who was a member of the Governing Body of
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IGCC and had been actively involved in the present
arbitration proceedings till September 2022, has
been appointed as Additional Director in the Board
of Directors of the Claimant Company in September
2022;
(v) Ms. Sonia Prashar continues to be Deputy Director
General of IGCC, while also being Director in the
Claimant company.
The copy of Master Data of IGCC as available on the
website of Ministry of Corporate Affairs, which shows the
members of IGCC's Committee, is annexed hereto and
marked as Exhibit RD-2.
18. It is submitted that the above facts, which are in
themselves sufficient to cause justifiable apprehension of
bias and fear of partiality and denial of equality in the
minds of a foreign company situated in Europe, further
add to the anxiety and apprehension of the Respondent
of being treated unfairly when coupled with the
circumstances mentioned above, including the following:
(i) The fact that Dr. Abhaykumar N. Firodia has been
President of IGCC in the past and has been since
many years (and continues to be) a member of the
Committee of IGCC, which Committee is responsible
for overall management and operation of IGCC, was
never disclosed to the Respondent, neither by the
Claimant nor by IGCC itself, even when the
Respondent communicated its reservation against
having IGCC as the Arbitral Institution;
(ii) The above fact was not even disclosed by Dr. Udo
Götschel from IGCC Germany, who was deputed by
Dr. Abhaykumar N. Firodia to visit the office of the
Respondent at Karlsruhe and persuade Mr. Rainer
Puls to accept the nomination of IGCC as the
Arbitral Institution by assuring utmost
professionalism and impartiality;
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(iii) In hindsight, the control that Dr. Abhaykumar N.
Firodia enjoys over IGCC is apparent from the fact
that he, in his anxiety to ensure that IGCC is
appointed as the Arbitral Institution, deputed an
official of IGCC Germany to visit, convince and
persuade the Respondent into accepting it as the
Arbitral Institution, perhaps deliberately, knowing
that he will be able to enjoy certain privileges and
control;
(iv) That although the fact of the Learned Arbitrator-
Mr. R.A. Shah, being a member of the IGCC's
Committee was disclosed in his Declaration
supplied to the Respondent, the Respondent was
never informed that the Learned Arbitrator shared
that position alongside with Dr. Abhaykumar N.
Firodia, the Chairman and Promoter of the
Claimant, which position he has been sharing with
Dr. Abhaykumar N. Firodia for many years;
(v) That Dr. Abhaykumar N. Firodia, who is not only
the Chairman and Promoter of the Claimant, but is
also the signatory to the TTA and was extensively
involved in the negotiations and communications
between the Claimant and the Respondent, and will
therefore be a key and crucial witness both for the
Respondent and the Claimant, and will also be
required to be cross-examined;
(vi) Respondent respectfully submits, without making
any personal imputations, that it cannot be ruled
out that the Learned Arbitrator- Mr. R.A. Shah, who
has been in the same Committee of IGCC alongwith
Dr. Abhaykumar N. Firodia, Chairman and Promoter
of the Claimant, and having strong social familiarity
with him for so many years, might have a
subconscious friendly bias in favour of the Claimant
herein;
(vii) That Ms. Sonia Prashar, who was a part of three
member Governing Body of IGCC (which body
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exercises substantial powers over administration of
the arbitral proceedings, including power to receive
communications, assist communication between
arbitrators, receive draft Award and suggest
modifications to the same much before it is shared
with the parties, consider applications for objection
to appointment of arbitrator, direct interim
stay/suspension of arbitral proceedings, etc.), has
been appointed as Additional Director by the
Claimant company itself in September 2022, which
gives rise to strong apprehension that talks of her
appointment with Claimant was underway even
during the period while she was serving as member
of Governing Body and was handling the instant
arbitral proceedings on behalf of IGCC.
(viii)Ms. Sonia Prashar, although no longer a member of
the Governing Body of IGCC, is still a Deputy
Director General of IGCC while being Additional
Director in the Claimant company. It is submitted
that by virtue of the above, Ms. Sonia Prashar will
not only be privy to the internal communications
and records of the Claimant company and be a part
of the board meetings and other committee
meetings of the Claimant company, but will also be
privy to internal documents and communications of
IGCC, while also exercising a degree of authority
over the other officials of IGCC, which is a patent,
glaring, and unacceptable conflict of interest, more
so in international commercial arbitration;
(ix) That the control and privilege that Dr. Abhaykumar
N. Firodia, Chairman and Promoter of Claimant,
enjoys over IGCC is also evident from the fact that
although the communication by the Learned
Nominee Arbitrators- Mr. Ciccu Mukhopadhyay and
Mr. R.A. Shah that they are unable to decide upon
the Presiding Arbitrator was sent on 14.11.2022,
the Claimant was able to file its Petition under
Section 11 of the Arbitration and Conciliation Act
1996 (running into more than 600 pages) before
the Hon'ble Supreme Court for appointment of
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Presiding Arbitrator on 15.11.2022, i.e. immediately
on the very next day. The above is evidence that the
Claimant, by virtue of the control and power it
enjoys over IGCC, had prior knowledge of the
internal communications and deliberations between
the Learned Nominee Arbitrators."
(Emphasis added)
xiii. In the above facts and circumstances, the Petitioner filed as noted
hereinabove Application dated 27th July 2023 under Section 16
read with Sections 12(3)(a), 13 and 18 of the said Act before the
learned Arbitral Tribunal inter alia seeking following reliefs :-
"In the circumstances, it is, therefore, most respectfully
prayed that the Learned Arbitrator, Mr. R. A. Shah, may be
pleased to rescue himself from the present arbitral
proceedings in the facts and circumstances of the case.
It is further prayed that this Hon'ble Tribunal may
graciously be pleased to:
(a) allow the present application and remove IGCC from
the arbitral proceedings with direction to IGCC to
refund all amounts paid by the Respondent to IGCC
and substitute another reputed arbitral institution in
place of IGCC to administer and manage the arbitral
proceedings for adjudication of the disputes and
differences between the Respondent and the Claimant;
OR
in the alternative allow conversion of the present
arbitral proceedings into ad hoc arbitral proceedings; "
(Emphasis added)
xiv. The learned Arbitral Tribunal by Order dated 13th January 2024
dismissed the said Application filed by the Petitioner. The relevant
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discussion is to be found in Paragraph Nos.7 to 16, which reads
as under :-
"7. Two issues have been raised by the Respondent in this
application. The first relates to the recusal of Mr. R.A. Shah
as the Arbitrator and the second pertains to removal of
IGCC as the arbitral institution. The Claimant submitted
that the application is barred by limitation as it has not
been filed within the time prescribed under Section 13 (2)
of the Act. The Claimant argued that the averments made
in the application relating to the date of knowledge of the
circumstances giving rise to the justifiability as to the
independence or impartiality of the Arbitrator are vague.
No explanation has been given as to why no inquiry was
made by the Respondent to find out about the
circumstances which gave rise to the impartiality of the said
Arbitrator at an earlier point of time.
8. The Respondent contended that information relating
to Ms. Sonia Prashar being a Deputy Director General of
the IGCC and an Additional Director in the Claimant-
Company came to its notice during internal meetings a
week prior to the filing of the application. The Respondent
probed further to find that Dr. Abhaykumar N. Firodia and
Mr. R.A. Shah, learned Arbitrator have been colleagues as
Members of the Committee of IGCC for a very long period.
Steps were taken immediately thereafter for filing an
application seeking recusal of Mr. R.A. Shah, learned
Arbitrator well within the time prescribed in Section 13 (2)
of the Act.
9. Section 13 (2) provides that a challenge to an
Arbitrator shall be made within 15 days after the party
becoming aware of the constitution of the Arbitral Tribunal
or after becoming aware of any circumstances referred to in
Section 12 (3) of the Act. According to Section 12 (3) of
the Act, an Arbitrator may be challenged if circumstances
exist that give rise to justifiable doubts as to his
independence or impartiality. Explanation 1 to Section 12
(1) refers to the grounds stated in the Fifth Schedule to
guide in determining whether circumstances exist which
give rise to the justifiable doubts as to the independence or
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impartiality of an Arbitrator. The point for determination is
whether the application filed by the Respondent is within
the period of limitation.
10. As referred to above, a challenge to an Arbitrator shall
be made within 15 days after becoming aware of the
constitution of a Tribunal or becoming aware of any
circumstances referred to in Sub-section 3 of Section 12.
The word 'shall' in the provision makes it clear that the
period prescribed in Section 13 (2) is mandatory. Normally,
the word 'shall' ought to be considered mandatory, though,
it is for the Court/Tribunal to ascertain the object of the
provision of law in question and context in which it is
made. The purpose with which an outer limit of 15 days
has been fixed for filing a challenge to an Arbitrator is to
ensure that there is no delay in the arbitral proceedings and
any challenge to an Arbitrator requires to be decided at the
earliest possible opportunity.
11. It is relevant to take note of a few dates before
proceeding further to determine whether the application
filed by the Respondent is within the time prescribed by
Section 13 (2) of the act. Mr. R.A. Shah, learned Arbitrator
enclosed his bio-data to his declaration of impartiality
under Section 12 of the Act on 19.05.2022. This Tribunal
was constituted after the appointment of the Presiding
Arbitrator by the Supreme Court of India on 05.01.2023.
According to the procedural time table, the Claimant had to
file its Statement of Claim before 08.05.2023. In fact, the
Statement of Claim was filed on 08.05.2023. The
Respondent was given time to file its Statement of Defence
and counter claim before 31.07.2023.
12. A challenge to an Arbitrator shall be made within 15
days after a party becomes aware of the constitution of the
Arbitral Tribunal. A party also has an opportunity to
challenge the Arbitrator within 15 days after becoming
aware of any circumstances referred to in Section 12 (3) of
the Act. The Respondent relies upon the second part of
Section 13 (2) to contend that it became aware of such
circumstances a week prior to 29.07.2023 which is the date
of the filing of this application. It contends that the
application was filed within 15 days from the date of
knowledge as the Respondent learnt about the
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circumstances giving rise to justifiable doubts as to the
impartiality of the Arbitrator only a week prior to the filing
of the present application.
13. The Tribunal finds that this explanation is not
acceptable, Mr. R.A. Shah, learned Arbitrator filed his
declaration under Section 12 on 19.05.2022. The
Respondent should have been vigilant in making inquiries
about any doubts regarding the impartiality of Mr. R.A.
Shah, learned Arbitrator immediately after his declaration
from which information relating to his continuance as
Member of the Committee of IGCC was available to the
Respondent. The Respondent has not shown due diligence
in making such inquiry, especially in view of the averments
made by the Respondent in the application that it was
persuaded by Dr. Abhaykumar N. Firodia to accept that the
arbitration would be conducted in accordance with the
Rules of the IGCC. The Respondent is relying upon
documents filed along with the application to show that Dr.
Abhaykumar N. Firodia is a Member of the Committee of
IGCC and Ms. Sonia Prashar is the Deputy Director General
of IGCC and Additional Director of the Claimant-Company
which are in public domain. However, what is material is
that the Application gives no explanation as to why
suddenly the enquiries into the office bearer and member
of the Committee were carried out at the time of drafting of
the Statement of Defence and why similar enquiries were
not made earlier when the disclosure was made by Mr.
Shah. From the above, it is clear that Respondent had
constructive knowledge of the circumstances giving rise to
justifiable doubts regarding the impartiality of Mr. R.A.
Shah, learned Arbitrator.
14. According to Gary B. Born in International
Commercial Arbitration, Third Edition, objection to an
Arbitrator's independence and impartiality should be raised
promptly after the arbitrator's nomination, alternatively,
after a party learns of the basis for the challenge. In some
cases, determining when a party actually knew of the
circumstances giving rise to the challenge may be difficult.
It is therefore necessary that if the Application is at a later
stage (not immediately after a disclosure), there is a
reasonable explanation as to the circumstances in which
the knowledge is stated to arise and why it was not known
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earlier. That is absent in the present case.
15. Under the circumstances, the explanation given by the
Respondent about its awareness of the circumstances giving
rise to justifiable doubts regarding the independence of Mr.
R.A. Shah, learned Arbitrator for the first time only a week
prior to the application being filed on 29.07.2023 is not
convincing.
16. For the foregoing reasons, the application is barred by
limitation. It is not necessary to express any opinion on the
other points argued by both sides."
(Emphasis added)
Thus, the learned Arbitral Tribunal has inter alia held as
follows :-
(a) No explanation has been given as to why no inquiry was
made by the Petitioner to find out about the circumstances
which gave rise to the impartiality of the said Arbitrator at
an earlier point of time.
(b) Mr. R. A. Shah, learned Arbitrator enclosed his profile to his
declaration of impartiality under Section 12 of the said Act
on 19th May 2023 and in the said profile it is disclosed that
Mr. R. A. Shah is a Member of Managing Committees of
various Commerce & Industry Associations such as Bombay
Chamber of Commerce & Industry and Indo-German
Chamber of Commerce.
(c) The Petitioner should have been vigilant in making
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inquiries about any doubts regarding the impartiality of Mr.
R. A. Shah, learned Arbitrator immediately after his
declaration from which information regarding to his
continuance as Member of the Committee of IGCC was
available to the Petitioner.
(d) The Petitioner has not shown due diligence in making such
inquiry. The Application gives no explanation as to why
suddenly the enquiries into the office-bearer and Member
of the Committee were carried out at the time of drafting of
the statement of defence and why similar inquiries were
not made earlier when the disclosure was made by Mr.
Shah, learned Arbitrator.
(e) Thus, the Petitioner had constructive knowledge of the
circumstances giving rise to justifiable doubts regarding the
impartiality of Mr. R. A. Shah, learned Arbitrator. In view of
above reasons, the learned Arbitral Tribunal inter alia came
to the conclusion that the Application is inter alia barred by
limitation and therefore dismissed the Application.
xv. The present Commercial Arbitration Petition seeking the reliefs as
set out herein above is filed in April 2024.
III] SUBMISSIONS OF MR. RAJIV KUMAR, LEARNED SENIOR
COUNSEL FOR THE PETITIONER:
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4. Mr. Rajiv Kumar, learned Senior Counsel for the Petitioner inter
alia raised the following contentions :-
i. Mr. R. A. Shah, the learned Arbitrator was nominated by
Respondent No.1. The Managing Director of the Respondent No.1
- Mr. Abhaykumar Firodia, was a Member of the Managing
Committee of the Respondent No.2 since 1995 and also had
served as a President of the Respondent No.2 in the past. The
learned Arbitrator did not make a disclosure that he has been and
continues to be a Member of the Managing Committee of the
Respondent No.2 since 1993, and as such, he has a close
relationship with Mr. Firodia. The learned Arbitrator did not
disclose that all material and relevant times he has also been a
Member of the Advisory Council of the Respondent No.2. This
disclosure was not made by the learned Arbitrator.
ii. Learned Senior Counsel pointed out Section 12 read with the
Fifth Schedule, Sixth Schedule and Seventh Schedule of the said
Act. Learned Senior Counsel submitted that Section 12 requires a
full and complete disclosure of all facts and events likely to give
rise to justifiable doubts as to the arbitrator's independence and
impartiality.
iii. Learned Senior Counsel submitted that reading of Section 12(1)
clearly shows that the same is widely worded by use of the words
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"direct or indirect" and requires relationships of all types to be
disclosed, as is clear from the use of the words "whether
financial, business, professional or other kind". Learned Counsel
submitted that the words "any circumstances" mean "all
circumstances" and it is the bounden duty of the Arbitrator to
disclose all the circumstances likely to give rise to justifiable
doubts as to his independence or impartiality.
iv. Learned Senior Counsel submitted that the disclosure as
contemplated under Section 12(1) is in accordance with the Sixth
Schedule of the said Act. The Fifth and the Seventh Schedules
give illustrations of circumstances likely to give rise to justifiable
doubts as to his independence and impartiality.
v. Learned Senior Counsel pointed out the declaration given by Mr.
R. A. Shah, learned Arbitrator at Exhibit D (Page No.146). It is
submitted that, in the said declaration, Mr. R. A. Shah, learned
Arbitrator, nominated by Respondent No.1, did not disclose the
following very important aspects :-
i. Mr. Firodia, the Chairman/Managing Director of Respondent
No.1 was a Member of the Committee of the Respondent
No.2 since 1995.
ii. Mr. R. A. Shah, learned Arbitrator was a Member of the
Committee of the Respondent No.2 since 1993 and therefore
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associated with and was well-acquainted with Mr. Firodia
since the year 1995.
iii. The learned Arbitrator was a Member of the Advisory
Council of the Respondent No.2.
iv. The learned Arbitrator continues to hold the said Office of
Committee Member and Member of the Advisory Council of
the Respondent No.2 even after his appointment as
Arbitrator.
v. Learned Senior Counsel submitted that the circumstances
which ought to have been disclosed fell within Items 1, 8, 14
and 33 of the Fifth Schedule as also Items 1, 8 and 14 of the
Seventh Schedule.
vi. Learned Senior Counsel submitted that Mr. R. A. Shah,
learned Arbitrator should have disclosed business
relationship with Mr. Firodia of the Respondent No.1,
inasmuch as it is the business of the Respondent No.2 to
facilitate arbitration. Learned Senior Counsel further
submitted that as a Member of the Advisory Council, Mr. R.
A. Shah regularly advises the Appointing Authority i.e.
Respondent No.2. He further submitted that Mr. R. A. Shah,
learned Arbitrator held a position as a Member of the
Managing Committee and also Advisory Council of the
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Respondent No.2. The requirement of disclosure under
Section 12(1) as per the Sixth Schedule format is a
mandatory requirement and is not optional.
vii. Learned Senior Counsel relied on the decision of a Division
Bench of the Delhi High Court in Ram Kumar v. Shriram
Transport Finance Co. Ltd. 1. By relying on the said decision,
he submitted that it is not for the parties to ascertain
circumstances that may give rise to justifiable doubts as to
independence / impartiality of the Arbitrator and it is for the
arbitrator to mandatorily disclose such circumstances.
viii. Learned Senior Counsel pointed out various requirement of
Section 12 and submitted that the disclosure as set out
herein above should have been made part of the disclosure
executed by Mr. R. A. Shah, learned Arbitrator. He submits
that non-disclosure defeats the object of a fair and
transparent trial and violates the procedure of Section 12.
Learned Senior Counsel submits that there can be no valid
arbitration without complying with the requirement of
Section 12.
ix. Learned Senior Counsel also raised certain contention
regarding Ms. Sonia Prasher who was acting as Deputy
Director General of Respondent No.2 and Member of the
1 2022 SCC OnLine Del 4268
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Governing Body and was involved with the present
arbitration proceedings in that capacity with the Respondent
No.2. She has been appointed as an Additional Director of
Respondent No.1 on 28th September 2022 i.e. 4 months
after the constitution of the Arbitral Tribunal. Thus, she
holds an Office as a Director along with Mr. Firodia on the
Board of Respondent No.1. Such an appointment creates
direct conflict of interest in the present matter. He submits
that her present capacity as Additional Director of
Respondent No.1 and in her earlier capacity as the Deputy
Director General of Respondent No.2 are in conflict with
each other. He submitted that appointment of Ms. Sonia
Prashar on the Board of Respondent No.1 ought to have
been disclosed. By email dated 28th September 2022 the
Governing Body of the Respondent No.2 informed the
parties that Ms. Prashar would no longer be a Member of
such body. The fact that she had been appointed as an
Additional Director in the Respondent No.1 was not
informed to the Petitioner either by the Respondent No.1 or
Respondent No.2. It is his submission that thus the entire
arbitration would be controlled by Respondent No.1 through
its Chairman Mr. Firodia and Ms. Prashar was consciously
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suppressed.
x. It is the submission of learned Senior Counsel that thus the
conduct of the Respondents and arbitrator cast serious doubt
and suspicion on the independence and impartiality of the
Arbitrator and the Respondent No.2 raises justifiable
apprehension of bias on the part of the Arbitrator and the
Respondent No.2.
xi. Learned Senior Counsel submits that on 30th May 2022, Mr.
R. A. Shah got himself empaneled as an Arbitrator on the
panel of Arbitrators. As an Arbitrator on the panel of
Arbitrators of the Respondent No.2 who also held Office as a
Committee Member and Member of the Advisory Council
reveals a position of conflict of interest held by Mr. R. A.
Shah. It is his submission that combination of holding
Offices of Respondent No.2 and acting as an Arbitrator
compromises his ability to give unbiased and fair decisions.
xii. He submits that in this matter the claim made by the
Respondent No.1 is of about Rs.140 Crores and the Counter-
Claim made by the Petitioner is about Rs.2,000 Crores and
therefore all these factors assume more importance. He
submitted that the Arbitral Tribunal has not considered any
fact relating to the impartiality and independence of Mr. R.
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A. Shah, learned Arbitrator.
xiii. Learned Senior Counsel further submitted that Section 12 of
the said Act is a complete Code to ensure a fair, transparent
and just trial. Learned Senior Counsel submitted that it is
not for the parties to ascertain circumstances that may give
rise to justifiable doubts as to independence / impartiality of
the Arbitrator. It is for the arbitrator to mandatorily disclose
such circumstances. Such requirement of disclosure is not
optional. He relied on the decisions in Ram Kumar (supra)
and Rashtriya Ispat Nigam Ltd. v. Space Tech Equipments
and Structurals Private Limited 2 to substantiate the said
contention.
xiv. Learned Senior Counsel by relying on Rashtriya Ispat Nigam
Ltd. (supra) submitted that when no order on merits was
passed by the Arbitral Tribunal in an Application filed under
Section 12 read with Section 13 of the said Act, an
Application under Section 14 would be maintainable. If the
Tribunal acts in a biased manner, it is de jure
incapacitated/unable to perform its function under Section
14 of the said Act. He also relied on the decision of the
Supreme Court in HRD Corpn. v. GAIL (India) Ltd. 3 to
2 2020 SCC OnLine AP 147
3 (2018) 12 SCC 471
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substantiate the said contention. He relied on the decision of
Delhi High Court in Alcove Industries Ltd. v. Oriental
Structural Engineers Ltd. 4 and submitted that if a lacuna is
found in the arbitration proceedings, such as, a justifiable
apprehension of bias of an arbitrator it would be best to see
that the law as contained in Section 14 would be given
effect to. He submitted that if the arbitral proceedings which
ought to be interdicted are allowed to continue and
culminate into an Award that would rather be a wasteful
expense of time and resources.
xv. By relying on the said decision in Alcove Industries Ltd.
(supra) learned Senior Counsel submitted that it is well-
settled that an Arbitrator with regard to whom there is a
reasonable apprehension of bias renders himself de jure
unable to perform his functions. The perceived impartiality
and independence of the Arbitrator lies at the core of his
mandate. He relied on the decision of Delhi High Court in
Larsen & Toubro Ltd. v. Public Works Department 5 and
submitted that the disablement of an arbitration under
Section 14(1)(a) takes within its fold not only ineligibility
criteria prescribed under the Seventh Schedule but also
4 2007 SCC OnLine Del 1709
5 2020 SCC OnLine Del 33
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those aspects which although do not fall within the ambit set
out in the Seventh Schedule but lend support to the plea
that the appointee arbitrator would be anything but
impartial and/or independent. He also relied on the decision
of the Supreme Court in State of Gujarat v. R.A. Mehta 6 and
submitted that actual proof of prejudice is not necessary.
What is relevant is the reasonableness of the apprehension
in this regard in the mind of a party. He submitted that in
case such apprehension exists, the trial/judgment/order
would stand vitiated for want of impartiality and such
judgment / order becomes a nullity and the trial becomes
coram non judice. He also relied on the decision of the
Supreme Court in HRD Corporation (supra) and submitted
that if the requisite disclosure made by the arbitrator is
lacking, the parties would be put at a disadvantage since
such information is often within the personal knowledge of
the arbitrator only. He also submitted that doubts as to
independence and impartiality of an arbitrator are justifiable
if a reasonable third person having knowledge of the
relevant facts and circumstances would reach the conclusion
that there is a likelihood that the arbitrator may be
influenced by factors other than the merits of the case in
6 (2013) 3 SCC 1
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reaching his or her decision.
xvi. He also relied on the decision of the Supreme Court in
Lombardi Engg. Ltd. v. Uttarakhand Jal Vidyut Nigam Ltd. 7
and submitted that independence and impartiality are the
hallmarks of arbitration. He also relied on the decision of
the Supreme Court in the case of Union of India v. Sanjay
Jethi 8, wherein it has been held by the Supreme Court that
a reasonable possibility of bias is enough to impugn an
action. He relied on the decision of the Delhi High Court in
the case of FLFL Travel Retail Lucknow (P) Ltd. v. Airports
Authority of India and submitted that complete and
comprehensive disclosure is necessary to ensure informed
consent for submission of disputes to a private tribunal. This
is of significance as the very legitimacy of arbitration is
founded upon the principles of party autonomy and
consensual submission to the jurisdiction of the arbitral
tribunal. He reiterated the requirement of disclosure is
mandatory and it is not for the parties to find out. Learned
Senior Counsel therefore submitted that the reliefs sought in
the Commercial Arbitration Petition be granted.
IV] SUBMISSIONS OF MR. MUSTAFA DOCTOR, LEARNED SENIOR
7 (2024) 4 SCC 341
8 (2013) 16 SCC 116
9 2024 SCC OnLine Del 7080
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COUNSEL ON BEHALF OF THE RESPONDENT NO.1:
5. Mr. Mustafa Doctor, learned Senior Counsel for the Respondent
No.1 raised following contentions :-
i. Learned Senior Counsel submitted that the present Petition is in
substance and effect a challenge to the Order dated 13th January
2024 of the Arbitral Tribunal and therefore the Petition is ex-facie
misconceived and not maintainable. He submitted that provisions
of Sections 14 and 15 has been wrongly invoked. He submitted
the contention of the Petitioner that the disclosure made by the
learned Arbitrator Mr. R. A. Shah was incomplete in any manner
is completely false, incorrect and misconceived. However, he
submitted that this is a matter which falls entirely within the
scope of Section 13(6) of the Act and therefore within the scope
of the jurisdiction of the Arbitral Tribunal. He submitted that the
provisions of Sections 14 and 15 of the Act have been wrongly
invoked. He submitted that Section 14 of the Act is applicable
only if the mandate of an Arbitrator terminates inter alia on
account of his having become " de jure" or "de facto" unable to
perform his functions. He submitted that Section 14 read with
Section 15 will apply only if the Petitioner makes out a case that
the mandate of the Arbitrator in question has been terminated
and there is a jurisdictional requirement to invoke the provisions
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of Sections 14 and 15 of the Act. He submitted that in this case,
no case is made out of the mandate of Mr. R. A. Shah, having
been terminated on account of his having become either de jure
or de facto unable to act on account or of having incurred any
other disability either under the provisions of Sections 14 and 15
or under Section 12(5) of the said Act read with the Seventh
Schedule thereof. Learned Senior Counsel therefore submitted
that in the absence of the said jurisdictional requirement the
Petitioner has ex-facie failed to cross the jurisdictional hurdle to
make out a case. He therefore submitted that the prayers in the
Petition ex-facie fall outside and beyond the scope of the
jurisdiction of the Court.
ii. He pointed out the contentions raised in Paragraph No.18(iv)
[Page No.167] and Paragraph No.33 [Page No.180] of the
Application filed under the provisions of Sections 12(3)(a) and
13 of the Act. He submitted that thus the Petitioner was at all
material time aware of the fact that Mr. Shah was a Member of
the Managing Committee of the Respondent No.2. He submitted
that statement in the Application filed before the Arbitral
Tribunal made to the effect that recently the Petitioner noticed
for the first time certain material facts which give rise to grave
bias and partiality just to overcome the objection regarding
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limitation. He submitted that the Application has admittedly
made more than 15 days after the constitution of the Arbitral
Tribunal and therefore the burden was on the Petitioner to show
that the Application was made within 15 days of the Petitioners
becoming aware of any circumstances referred to in Section
12(3) of the Act. He submitted that the Petitioner is only relying
on certain averments in that behalf. Learned Senior Counsel
submitted that the Hon'ble Arbitral Tribunal by giving cogent
reasons has recorded the conclusion that the Application made by
the Petitioner was barred by limitation. He submitted that thus as
per the mandate of law as provided under Sections 13(4) and
13(5) of the Act, the Arbitral Tribunal must continue the arbitral
proceedings and make an arbitral award. Learned Senior Counsel
submitted that when such an award is made the party
challenging the appointment of the arbitrator can make an
application for setting aside such an arbitral award in accordance
with Section 34 of the said Act. This mandate of law the
Petitioner is seeking to circumvent by filing the present Petition.
He submitted that the present Petition is nothing but an appeal
against the Order dated 13th January 2024 passed by the learned
Arbitral Tribunal in the guise of an application under the
provisions of Sections 14 and 15 of the Act. Learned Senior
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Counsel submitted that the Petitioners are seeking judicial
intervention by this Court in a manner not envisaged under the
Act.
iii. Learned Senior Counsel pointed out Section 12 of the Act and
submitted that the ground stated in the Fifth Schedule of the Act
is a guide for arriving at a conclusion that there might be
justifiable doubts as to the independence or impartiality of an
Arbitrator. The challenge to the appointment of an Arbitrator in
such a case is governed by the provisions of Section 12(3) read
with Section 13 of the Act and is to be made before the Arbitral
Tribunal. He submitted that Arbitral Tribunal is vested with the
exclusive jurisdiction to decide any challenge relating to the Fifth
Schedule and/or arising under the provisions of Section 12(3) of
the Act.
iv. He pointed out Section 12(5) read with the Seventh Schedule of
the Act and submitted that the persons who are ex-facie ineligible
to act as an Arbitrator are covered by the said provisions. He
submitted that it is for the substitution of this category of persons
that an application may be made under Sections 14 or 15 of the
Act. He pointed out the decision of the Supreme Court in the case
of HRD Corporation (supra) which has been re-affirmed in the
case of Chennai Metro Rail Ltd. v. Transtonnelstroy Afcons
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(JV) 10. By relying on these decisions, he submitted that the
Supreme Court has noted that 2016 Amendment to the Act has
created a dichotomy between persons who become ineligible to
be appointed as an Arbitrator and the persons against whom
doubt exists as to their independence or impartiality. The
Supreme Court has held that only cases where an Arbitrator
becomes ineligible, the same fall under the provisions of Section
14(1)(a) of the Act and that in all other cases the Application is
required to be made before the Arbitral Tribunal and if such an
application is rejected, the law mandates that the Arbitral
Tribunal must continue the arbitral proceedings and make an
Award. He submitted that it is only after such an award is made
that a party seeking setting aside the arbitral award in
accordance with Section 34 of the Act can challenge the
appointment of the arbitrator. He submitted that in view of the
settled legal position the Supreme Court in the case of HRD
Corporation (supra), refused to go into the challenge against two
of the Arbitrators under the Fifth Schedule in the facts of that
case.
v. He submitted that the case put up by the Petitioner clearly shows
that the Petitioner has sought to assail the appointment of Mr. R.
A. Shah on the ground that justifiable doubt exists as to his
10 (2024) 6 SCC 211
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independence or impartiality which is covered under Section
12(3) of the Act read with the Fifth Schedule and that no case of
ineligibility to act or of Mr. Shah's mandate having come to an
end i.e. under Section 12(5) read with the Seventh Schedule, has
even been attempted to be made out against Mr. R. A. Shah.
vi. Learned Senior Counsel submitted that in the light of the law laid
down by the Supreme Court in HRD Corporation (supra) and
Chennai Metro (supra), the present Petition is ex-facie not
maintainable.
vii. Learned Senior Counsel submitted that filing of the present
Petition is misconceived attempt on the part of the Petitioner to
delay the arbitration by in effect impugning the Order dated 13rd
January 2024 passed by the learned Arbitral Tribunal which is
statutorily impermissible at this stage of the proceedings. Learned
Senior Counsel submitted that this Petition is in fact in the nature
of Appeal against the Order dated 13th January 2024 of the
learned Arbitral Tribunal in the guise of an Application under
Sections 14 and 15 of the Act, rejecting the Petitioner's
Application under Sections 12(3)(a) and 13 of the Act. He
submitted that the same is statutorily impermissible at this stage
of the proceedings.
viii. He submitted that nothing has been brought on record to show
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that Mr. Shah's mandate as an Arbitrator, has come to an end or
that he has become either de facto and/or de jure unable to act
which is the mandatorily jurisdictional prerequisite of an
application under Sections 14 and 15 of the Act. Learned Senior
Counsel submitted that the points raised in the Petition are
concerning assailing Order passed by the learned Arbitral
Tribunal and no case is made out to show that the mandate of Mr.
R. A. Shah, learned Arbitrator has come to an end.
ix. He submitted that it has not been disclosed that the Petitioner -
Company is in liquidation. The Petition has been affirmed by Mr.
Rainer Puls, purporting to be a Director of the Petitioner -
Company without disclosing that the Petitioner - Company is in
liquidation since 31st October 2023 and that he has been
appointed as a liquidator of the Petitioner - Company and no
longer acts as a Director. It is submitted that it has not been
pointed out that the Petitioner - Company is in process of the
liquidation. Learned Senior Counsel, however, fairly submitted
that in view of the opinions filed by the respective foreign experts
conversant with the German Law in relation to the liquidation /
dissolution of the Petitioner, they agreed that the Petitioner -
Company could continue to file legal proceedings till such time as
its name was removed from the commercial register. The expert
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appointed by Respondent No.1 opined that the Petition could not
have been affirmed by Mr. Rainer Puls in the capacity as Director
as he had ceased to hold that position after 31st August 2023 and
thereafter the Petitioner - Company could only be represented by
its liquidator. He submitted that as per the experts opinion under
the German Law, the liquidator must sign in a way that it
indicates that the company is in liquidation. It is submitted that
thus the Petitioners have deliberately made false and misleading
statements in the Petition by suppressing the fact that the
Petitioner's Company was in liquidation and have therefore come
to this Court with unclean hands. It is submitted that the Petition
is ex-facie not maintainable.
x. Learned Senior Counsel again reiterated that any question with
regard to the adequacy of the disclosure made by Mr. R. A. Shah
falls within the exclusive domain and jurisdiction of the Arbitral
Tribunal as per the provisions of Sections 12(3)(a) and 13 of the
Act. Learned Senior Counsel submitted that the fact that Mr. Shah
had made a disclosure to the effect that he was a Member of the
Committee has never disputed by the Petitioner. The same clearly
falls from the averments made in Paragraph Nos.18(iv) and 33
made before the Arbitration Tribunal. It is submitted that the
declaration made by Mr. R. A. Shah, learned Arbitrator is
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complete in all respects. It is submitted that Mr. Shah, at all
relevant times, made a disclosure with respect to him being on
the Managing Committee of the Respondent No.2. Learned
Senior Counsel also relied on the decision of the Delhi High Court
in Ram Kumar (supra), and more particularly on Paragraph
No.23 of the same and submitted that the adequate disclosure is
made.
xi. Learned Senior Counsel further submitted that the Managing
Committee of the Respondent No.2 consists of 27 people and
generally four to five times a year, meetings of the Managing
Committee takes place. He submitted that the fact that Mr. Shah
and Dr. Firodia both served on this Committee, cannot be a
ground to create justifiable doubts as to the independence and
impartiality of Mr. R. A. Shah and therefore the said disclosure
was not necessary. He submitted that the Respondent No.1 had
made a specific statement to the effect that Dr. Firodia and Mr.
Shah have no connection or relationship with one another and
that neither Mr. Shah nor the firm of which he is a partner had
rendered any legal advice or services to Respondent No.1 or to
Dr. Firodia.
xii. Learned Senior Counsel submitted that thus none of the tests as
laid down in the provisions of Section 12 read with the Fifth and
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the Seventh Schedule of the Act are therefore applicable to the
facts and circumstances of the present case.
xiii. He submitted that although the arguments were raised on behalf
of the Petitioner that the disclosures are not made in terms of the
provisions of Entry 33 of the Fifth Schedule and Entry 1, 2 and 8
of the Fifth Schedule, however, the necessary disclosure has been
made. He relied on the statement made by the Petitioner in
Paragraph Nos.18(iv) and 33 of the Application made before the
Arbitral Tribunal (Page Nos.167 and 180 of the Petition), wherein
it is specifically stated that Mr. R. A. Shah had disclosed that he
was a Member of the Respondent No.2 - Managing Committee.
Learned Senior Counsel further submitted that if the Petitioner is
relying on either Entry 8 or 33 of the Fifth Schedule in the
Application made by the Petitioner under the provisions of
Sections 12(3)(a) and 13 would ex-facie be barred by limitation
under the first part of Section 13(2) as the Petitioner was aware
right from the time when he made the disclosure that Mr. R. A.
Shah is a Member of the Managing Committee of the Respondent
No.2. As far as the contention raised by the Petitioner that Entry
1 and Entry 2 of the Seventh Schedule are attracted, it is
submitted that no case is made out in the Petition that a business
relationship exists between Mr. R. A. Shah and Respondent No.1.
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Learned Senior Counsel submitted that Mr. R. A. Shah and Dr.
Firodia are on the Board of Respondent No.2, cannot be business
relationship and the same is only professional relationship and
therefore Entry No.1 would not be applicable to the facts and
circumstances of the present case. He submitted that the
Supreme Court in the case of HRD Corporation (supra) had
considered and interpreted Entry No.1 of the Seventh Schedule
and held that a business relationship as considered in Entry No.1
cannot be equated to a professional relationship. He relied on
Paragraph No.21 of the said decision. He submitted that it is very
clear that the Respondent No.2 is not an affiliate of Respondent
No.1 and accordingly Entry No.2 of the Seventh Schedule would
not be applicable.
xiv. He submitted that an Application seeking recusal or removal of
an Arbitrator made under Section 12(3)(a) read with Section 13
or under Sections 14 and 15 has a direct bearing on the
reputation of the Arbitrator in question. He submitted that in the
present case the Arbitrator in question i.e. Mr. R. A. Shah is a
senior and reputed solicitor. He submitted that for an application
of this nature to be made on vague and unsubstantiated grounds
with vague reference to some wholly irrelevant Entries in the
Fifth Schedule and the Seventh Schedule, have no application to
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the facts and circumstances of the present case and is grossly
unfair to the concerned learned Arbitrator. He submitted that
every ground of challenge is restricted to the provisions of the
Fifth Schedule and the Seventh Schedule of the Act and relied on
the decision of the Supreme Court in Chennai Metro (supra),
more particularly on Paragraph Nos.40 and 41 of the same.
xv. He submitted that the Petitioner is not entitled to treat the
present proceedings as an Appeal against the Order dated 13th
January 2024. He submitted that an Application under Section 13
of the Act is required to be made before the Arbitral Tribunal.
Section 13(2) of the Act provides that such an application is
required to be made within 15 days after constitution of the
Arbitral Tribunal or after becoming aware of any circumstances
referred to in Section 13(2). He submitted that admittedly no
application has been made within 15 days after constitution of
the Arbitral Tribunal and therefore the Application which has
been filed is barred by limitation. He submitted that if it is the
case of the Petitioner that after becoming aware of any
circumstances referred to in Section 13(2), then the Arbitral
Tribunal had to be satisfied that the averments relating to
discovery of material facts was truthful and factually correct in
order to ascertain if the Application was filed within the period of
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limitation. He pointed out Paragraph No.17 of the Application
filed by the Petitioner before the learned Arbitral Tribunal. He
submitted that as the learned Arbitral Tribunal has found that the
Application filed is after the period of limitation, the
jurisdictional facts is found to be absent and therefore the present
Petition be not entertained. Learned Senior Counsel submitted
that very vague pleas are made in Paragraph No.17 regarding the
jurisdictional fact and although in the reply contention regarding
the same has been raised no further particulars were furnished
even in Affidavit in Rejoinder by the Petitioner. He submitted that
the learned Arbitral Tribunal has decided the question of
limitation as the learned Arbitral Tribunal has found that the
Application is barred by limitation. Therefore, the determination
of the facts and pleadings with respect to this aspect squarely fall
within the jurisdiction of the Arbitral Tribunal. He therefore
submitted that the finding of learned Arbitral Tribunal is wholly
within its jurisdiction.
xvi. He submitted that as per the provisions of Section 13(4) of the
Act, the Arbitral Tribunal is mandated to continue with the
arbitral proceedings if a challenge made under Section 13(2) of
the Act is not successful. He submitted that any challenge to this
impugned Order can only be now made at the stage of the
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proceedings under Section 34 of the Act if and when the final
Award is impugned. He therefore submitted that in view of the
statutory scheme of the said Act the present Petition in which the
said Order dated 13th January 2024 is indirectly challenged
ought not to be countenanced and therefore the Petition be not
entertained.
xvii. He pointed out Section 12 of the Act. He submitted that under
Section 12 two categories are created; the first that are referable
to the Fifth Schedule i.e. where "justifiable doubts" may exist,
and the second those that are referable to the Seventh Schedule
where, the Arbitrator is ex-facie becomes ineligible to act. He
submitted that the question with respect to whether or not there
are justifiable doubts as to the independence or impartiality of an
Arbitrator is required to be decided by the Arbitral Tribunal itself
and the decision of the Arbitral Tribunal is final and binding on
the parties and can only be assailed under the provisions of
Section 34 of the Act if the Arbitral Tribunal comes to the
conclusion that no case for justifiable doubts is made out.
xviii. He submitted that if the ineligibility of an Arbitrator as
contemplated under Section 12(5) of the Act would make him de
jure unable to perform his functions then the same can be
addressed by an application under Sections 14 and 15 of the Act.
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He submitted that although the Act does not use the word "bias",
however, from the provision of Section 12 to the effect that
"justifiable doubts as to his independence or impartiality" is
nothing but an apprehension of bias and would therefore fall
under the provisions of Section 12(3) of the Act to be addressed
by the procedure mandated under Section 13 of the Act. On the
other hand, an Arbitrator who is ineligible to act under the
provisions of Section 12(5) of the Act would effectively be
deemed to be biased and therefore de jure unable to perform his
duties. He submitted that in the facts of the present case, no case
is made out of bias or of any likelihood of bias against Mr. R. A.
Shah. He submitted that at the most the Petitioner has
apprehension of bias. He submitted that therefore the provisions
of Section 14 ex-facie would not be applicable. Learned Senior
Counsel relied on Paragraph Nos.30 and 31 of the decision of
Chennai Metro (supra). He relied on the decision of the Supreme
Court in the case of Sanjay Jethi (supra) and submitted that the
words used in Section 12(3)(a) of the Act are "justifiable doubts"
and not mere doubts. He submitted that it is not that every
suspicion held by the party that must reach to the conclusion that
the arbitrator in the proceedings is biased.
xix. Learned Senior Counsel relied on the decision of this Court in Oil
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and Natural Gas Corporation Limited v. Sumitomo Heavy
Industries Ltd. 11 and held that the umpire being from the same
chamber as one of the Counsel was not required to be disclosed
as this does not impair the independence and there is no question
of bias in such a case. He relied on the decision in Sanjay Jethi
(supra), which is a case relating to the Armed Forces Tribunal,
where the question was with regard to the members having an
interest in the proceedings. He submitted that it is not even the
Petitioner's case that Mr. Shah has any interest in the
proceedings. He again relied on the Fifth and the Seventh
Schedules and on the decision of the Supreme Court in Chennai
Metro (supra) and submitted that these Schedules have to be the
basis on which a determination in this regard is to be made under
the Act. He submitted that none of the tests laid down by the
Supreme Court are at all applicable to the facts of the present
case. He pointed out Paragraph Nos.41 to 45 and 51 of the
decision in Chennai Metro (supra). He submitted that in the
factual position involved in the decision of the Delhi High Court
in Ram Kumar 12, the Court came to the conclusion that no
disclosure was made as was required to be made in accordance
with the Entry 22 of the Fifth Schedule (Paragraph No.19) and
11 1999 SCC OnLine Bom 741
12 2022 SCC OnLine Del 4268
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accordingly the arbitral proceedings and the impugned Award
was vitiated. However, in the present case, disclosure as was
required to be made regarding the Fifth Schedule or the Seventh
Schedule was made. Learned Senior Counsel submitted that the
present case is not a challenge under Section 34 of the Act but
under Sections 14 and 15 of the Act. He therefore submitted that
the said decision in the case of Ram Kumar (supra) will have no
application to the present case. He submitted that, in the present
case, as specific finding has been recorded by the learned Arbitral
Tribunal that the Application is barred by limitation and therefore
the same is not at all maintainable, it was not necessary to
consider the same on merits. He therefore submitted that reliance
on the decision of Rashtriya Ispat Nitam Ltd. (supra) is not at all
necessary and in any case the same is irrelevant.
xx. He submitted that it is not the case of the Petitioner before the
Arbitral Tribunal that Mr. R. A. Shah had become either de jure or
de facto unable to act as an Arbitrator and therefore the question
of non disposal of the said Application on merits is completely
irrelevant. He submitted that when a clear case of bias is made
out, then only the Court would be entitled to interfere, otherwise
it would be left it to be adjudicated at the stage of Section 34.
xxi. Learned Senior Counsel placed reliance on the decision of the
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Delhi High Court in National Highways Authority of India v. K. K.
Sarin 13. He submitted that in that case the Petition under Section
14 was entertained as the Court has come to the conclusion that
the Arbitrator had acted in a biased manner. He submitted that,
in the present case, no case is made out of bias and at the highest
the case of the Petitioner is of apprehension of bias. He therefore
submitted that the Application under Section 14 be not
entertained.
xxii. Learned Senior Counsel submitted that as far as reliance of the
Petitioner on the case of Alcov Industries (supra), the said
decision of the Delhi High Court is dated 28th December 2000
i.e. prior to 2016 Amendment and also prior to the decisions of
the Supreme Court in HRD Corporation (supra) and Chennai
Metro (supra), and therefore the same is no longer good law. He
submitted that even in the case of Larsen & Toubro Ltd. (supra),
the Court after coming to the conclusion that under provisions of
Section 14(1)(a), the Arbitrator would become de jure unable to
perform his functions then only held that the Court has
jurisdiction under Section 14. He relied on Paragraph No.19 as
well as Paragraph Nos.23.5 to 24 of the said decision.
xxiii. He submitted that the decisions relied on by the Petitioner in
State of Gujarat v. R.A. Mehta (supra), Lombardi Engg. Ltd.
13 2009 CJ (Del) 463 : 2009 SCC OnLine Del 750
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(supra) and Union of India v. Sanjay Jethi (supra) distinguish
between apprehension of bias and actual bias and/or real
likelihood of bias. He submitted that for the application of these
decisions the Arbitral Tribunal must come to a finding that there
is actual bias and / or real likelihood of bias. He pointed out
Paragraph No.18 of the Application filed before the Tribunal
(Page No.165 of the Petition), wherein the contention raised by
the Petitioner is that the facts are sufficient to cause "justifiable
apprehension of bias". He submitted that now the stand of the
Petitioner has changed and now it is his contention that "the
doubt about impartiality and independence" of Mr. R. A. Shah
goes to the root of the matter and therefore the Arbitral Tribunal
becomes ineligible under Section 14(1)(a) and becomes de jure
unable to perform his functions.
xxiv. Learned Senior Counsel submits that reliance of the Petitioner on
FLFL Travel (supra) is completely irrelevant. Learned Senior
Counsel submitted that the said decision was passed in a
proceeding under Section 34 of the Act. He submitted that in the
said decision of FLFL Travel (supra) in Paragraph No.9 it is
specifically observed that "the applicability of Section 12 is
guided by the Fifth and the Seventh Schedules of the Act" and
has made a reference to Entry Nos.22 and 24 of the Fifth
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Schedule to the said Act to arrive at his findings regarding non-
disclosure. He submitted that in the facts of the present case the
Petition has been filed without reference to any provision of the
Fifth Schedule or the Seventh Schedule of the Act. Learned
Senior Counsel submitted that the issue that was decided by the
Delhi High Court in FLFL Travel (supra) is in relation to Section
12(2) of the Act read with the Fifth Schedule and not in relation
to Sections 14 and 15 of the Act read with the Seventh Schedule.
He submitted that in any case the same supports the case of the
Respondent No.1 to the effect that with respect to the
insufficiency of a disclosure under Section 12 read with the Fifth
Schedule having been rejected by the learned Arbitral Tribunal
under Section 13(2) of the Act, the same can only be assailed
under the provisions of Section 34. He therefore submitted that
no case has been made out which calls for any interference with
the arbitral process.
xxv. He submitted that without prejudice to these submissions as per
the provisions of Section 15 of the Act where the mandate of an
arbitrator terminates, a substitute arbitrator shall be appointed
according to the rules that were applicable for the appointment
of the Arbitrator being replaced and in case if this Court comes to
the conclusion that the mandate of Mr. R. A. Shah terminates,
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then considering Rule 8.5 of the IGCC Arbitration Rules which
are applicable to the appointment of Mr. R. A. Shah would apply
and Respondent No.1 would have right to appoint its nominee
Arbitrator. He therefore submitted that the Petition be dismissed.
V] POINTS FOR DETERMINATION:
6. Thus, on the basis of the contentions raised by Mr. Rajiv Kumar,
learned Senior Counsel for the Petitioner and Mr. Mustafa Doctor,
learned Senior Counsel for the Respondent No.1, following points arise
for determination:
I. Nature and extent of disclosure required under Section 12
read with Schedule 5 and Schedule 7 of the Arbitration Act
and the remedies available to the parties in case of non-
adequate disclosure.
II. The extent of disclosure / non-disclosure in this case.
III. Effect of Order dated 13th January 2024 passed by the
learned Arbitral Tribunal in Application under Section
13(2) of the Arbitration Act.
IV. The maintainability of the present Petition filed under
Sections 14 and 15 of the Arbitration Act in view of the
Order dated 13th January 2024 passed by the learned
Arbitral Tribunal.
V. The relief to which the Petitioner is entitled in this Petition
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filed under Sections 14 and 15 of the Arbitration Act.
VI] FIRST POINT:
Nature and extent of disclosure required under Section 12
read with Schedule 5 and Schedule 7 of the Arbitration Act
and the remedies available to the parties in case of non-
adequate disclosure.
7. The very important point which requires determination in this
Petition, particularly to determine other points framed above, is nature
and extent of disclosure required under Section 12 read with the Fifth,
Sixth and the Seventh Schedules. This is a very important point as on
the basis of the same it will be required to be analysed whether Mr. R.
A. Shah, learned Arbitrator has made the requisite disclosure.
8. In the context of this point, the important Sections are Sections
12, 13 and 14 and the important Schedules are the Fifth, Sixth and the
Seventh Schedules. The same are reproduced herein below for ready
reference:-
Sections 12, 13 and 14 of the Arbitration And Conciliation
Act, 1996
"12. Grounds for challenge.--[(1) When a person is
approached in connection with his possible appointment as an
arbitrator, he shall disclose in writing any circumstances,--
(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
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dispute, whether financial, business, professional or other
kind, which is likely to give rise to justifiable doubts as to his
independence or impartiality; and
(b) which are likely to affect his ability to
devote sufficient time to the arbitration and in particular his
ability to complete the entire arbitration within a period of
twelve months.
Explanation 1.--The grounds stated in the Fifth
Schedule shall guide in determining whether circumstances
exist which give rise to justifiable doubts as to the
independence or impartiality of an arbitrator.
Explanation 2.--The disclosure shall be made by such
person in the form specified in the Sixth Schedule.]
(2) An arbitrator, from the time of his appointment
and throughout the arbitral proceedings, shall, without delay,
disclose to the parties in writing any circumstances referred to
in sub-section (1) unless they have already been informed of
them by him.
(3) An arbitrator may be challenged only if--
(a) circumstances exist that give rise to
justifiable doubts as to his independence or impartiality, or
(b) he does not possess the qualifications agreed
to by the parties.
(4) A party may challenge an arbitrator appointed by
him, or in whose appointment he has participated, only for
reasons of which he becomes aware after the appointment has
been made.
[(5) Notwithstanding any prior agreement to the
contrary, any person whose relationship, with the parties or
counsel or the subject matter of the dispute, falls under any of
the categories specified in the Seventh Schedule shall be
ineligible to be appointed as an arbitrator:
Provided that parties may, subsequent to disputes
having arisen between them, waive the applicability of this
sub-section by an express agreement in writing.]
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13. Challenge procedure.--(1) Subject to sub-section (4), the
parties are free to agree on a procedure for challenging an
arbitrator.
(2) Failing any agreement referred to in sub-section
(1), a party who intends to challenge an arbitrator shall,
within fifteen days after becoming aware of the constitution
of the arbitral tribunal or after becoming aware of any
circumstances referred to in sub-section (3) of section 12,
send a written statement of the reasons for the challenge to
the arbitral tribunal.
(3) Unless the arbitrator challenged under sub-section
(2) withdraws from his office or the other party agrees to the
challenge, the arbitral tribunal shall decide on the challenge.
(4) If a challenge under any procedure agreed upon by
the parties or under the procedure under sub-section (2) is
not successful, the arbitral tribunal shall continue the arbitral
proceedings and make an arbitral award.
(5) Where an arbitral award is made under sub-
section (4), the party challenging the arbitrator may make an
application for setting aside such an arbitral award in
accordance with section 34.
(6) Where an arbitral award is set aside on an application
made under sub-section (5), the Court may decide as to
whether the arbitrator who is challenged is entitled to any
fees.
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
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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."
The Fifth, Sixth and Seventh Schedules of the Arbitration And
Conciliation Act, 1996
"THE FIFTH SCHEDULE
[See Section 12(1)(b)]
The following grounds give rise to justifiable doubts as
to the independence or impartiality of arbitrators:
ARBITRATOR'S RELATIONSHIP WITH THE PARTIES OR
COUNSEL
1. The arbitrator is an employee, consultant, advisor or has
any other past or present business relationship with a party.
2. The arbitrator currently represents or advises one of the
parties or an affiliate of one of the parties.
3. The arbitrator currently represents the lawyer or law firm
acting as counsel for one of the parties.
4. The arbitrator is a lawyer in the same law firm which is
representing one of the parties.
5. The arbitrator is a manager, director or part of the
management, or has a similar controlling influence, in an
affiliate of one of the parties if the affiliate is directly involved
in the matters in dispute in the arbitration.
6. The arbitrator's law firm had a previous but terminated
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involvement in the case without the arbitrator being involved
himself or herself.
7. The arbitrator's law firm currently has a significant
commercial relationship with one of the parties or an affiliate
of one of the parties.
8. The arbitrator regularly advises the appointing party or an
affiliate of the appointing party even though neither the
arbitrator nor his or her firm derives a significant financial
income therefrom.
9. The arbitrator has a close family relationship with one of
the parties and in the case of companies with the persons in
the management and controlling the company.
10. A close family member of the arbitrator has a significant
financial interest in one of the parties or an affiliate of one of
the parties.
11. The arbitrator is a legal representative of an entity that is
a party in the arbitration.
12. The arbitrator is a manager, director or part of the
management, or has a similar controlling influence in one of
the parties.
13. The arbitrator has a significant financial interest in one of
the parties or the outcome of the case.
14. The arbitrator regularly advises the appointing party or an
affiliate of the appointing party, and the arbitrator or his or
her firm derives a significant financial income therefrom.
RELATIONSHIP OF THE ARBITRATOR TO THE DISPUTE
15. The arbitrator has given legal advice or provided an
expert opinion on the dispute to a party or an affiliate of one
of the parties.
16. The arbitrator has previous involvement in the case.
ARBITRATOR'S DIRECT OR INDIRECT INTEREST IN
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THE DISPUTE
17. The arbitrator holds shares, either directly or indirectly, in
one of the parties or an affiliate of one of the parties that is
privately held.
18. A close family member of the arbitrator has a significant
financial interest in the outcome of the dispute.
19. The arbitrator or a close family member of the arbitrator
has a close relationship with a third party who may be liable
to recourse on the part of the unsuccessful party in the
dispute.
PREVIOUS SERVICES FOR ONE OF THE PARTIES OR
OTHER INVOLVEMENT IN THE CASE
20. The arbitrator has within the past three years served as
counsel for one of the parties or an affiliate of one of the
parties or has previously advised or been consulted by the
party or an affiliate of the party making the appointment in
an unrelated matter, but the arbitrator and the party or the
affiliate of the party have no ongoing relationship.
21. The arbitrator has within the past three years served as
counsel against one of the parties or an affiliate of one of the
parties in an unrelated matter.
22. The arbitrator has within the past three years been
appointed as arbitrator on two or more occasions by one of
the parties or an affiliate of one of the parties.
23. The arbitrator's law firm has within the past three years
acted for one of the parties or an affiliate of one of the parties
in an unrelated matter without the involvement of the
arbitrator.
24. The arbitrator currently serves, or has served within the
past three years, as arbitrator in another arbitration on a
related issue involving one of the parties or an affiliate of one
of the parties.
RELATIONSHIP BETWEEN AN ARBITRATOR AND
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ANOTHER ARBITRATOR OR COUNSEL
25. The arbitrator and another arbitrator are lawyers in the
same law firm.
26. The arbitrator was within the past three years a partner
of, or otherwise affiliated with, another arbitrator or any of
the counsel in the same arbitration.
27. A lawyer in the arbitrator's law firm is an arbitrator in
another dispute involving the same party or parties or an
affiliate of one of the parties.
28. A close family member of the arbitrator is a partner or
employee of the law firm representing one of the parties, but
is not assisting with the dispute.
29. The arbitrator has within the past three years received
more than three appointments by the same counsel or the
same law firm.
RELATIONSHIP BETWEEN ARBITRATOR AND PARTY
AND OTHERS INVOLVED IN THE ARBITRATION
30. The arbitrator's law firm is currently acting adverse to one
of the parties or an affiliate of one of the parties.
31. The arbitrator had been associated within the past three
years with a party or an affiliate of one of the parties in a
professional capacity, such as a former employee or partner.
OTHER CIRCUMSTANCES
32. The arbitrator holds shares, either directly or indirectly,
which by reason of number or denomination constitute a
material holding in one of the parties or an affiliate of one of
the parties that is publicly listed.
33. The arbitrator holds a position in an arbitration institution
with appointing authority over the dispute.
34. The arbitrator is a manager, director or part of the
management, or has a similar controlling influence, in an
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affiliate of one of the parties, where the affiliate is not directly
involved in the matters in dispute in the arbitration.
Explanation 1.--The term "close family member" refers to a
spouse, sibling, child, parent or life partner.
Explanation 2.--The term "affiliate" encompasses all
companies in one group of companies including the parent
company.
Explanation 3.--For the removal of doubts, it is clarified that
it may be the practice in certain specific kinds of arbitration,
such as maritime or commodities arbitration, to draw
arbitrators from a small, specialised pool. If in such fields it is
the custom and practice for parties frequently to appoint the
same arbitrator in different cases, this is a relevant fact to be
taken into account while applying the rules set out above.
THE SIXTH SCHEDULE
[See section 12(1)(b)]
Name :
Contact Details :
Prior Experience (including Experience :
with arbitrations)
Number of on-going arbitrations :
Circumstances disclosing any past or :
present relationship with or interest in
any of the parties or in relation to the
subject-matter in dispute, whether
financial, business, professional or other
kind, which is likely to give rise to
justifiable doubts as to your
independence or impartiality (list out)
Circumstances which are likely to affect :
your ability to devote sufficient time to
the arbitration and in particular your
ability to finish the entire arbitration
within twelve months (list out)
(Emphasis added)
THE SEVENTH SCHEDULE
[See section 12(5)]
ARBITRATOR'S RELATIONSHIP WITH THE PARTIES OR
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COUNSEL
1. The arbitrator is an employee, consultant, advisor or has
any other past or present business relationship with a party.
2. The arbitrator currently represents or advises one of the
parties or an affiliate of one of the parties.
3. The arbitrator currently represents the lawyer or law firm
acting as counsel for one of the parties.
4. The arbitrator is a lawyer in the same law firm which is
representing one of the parties.
5. The arbitrator is a manager, director or part of the
management, or has a similar controlling influence, in an
affiliate of one of the parties if the affiliate is directly involved
in the matters in dispute in the arbitration.
6. The arbitrator's law firm had a previous but terminated
involvement in the case without the arbitrator being involved
himself or herself.
7. The arbitrator's law firm currently has a significant
commercial relationship with one of the parties or an affiliate
of one of the parties.
8. The arbitrator regularly advises the appointing party or an
affiliate of the appointing party even though neither the
arbitrator nor his or her firm derives a significant financial
income therefrom.
9. The arbitrator has a close family relationship with one of
the parties and in the case of companies with the persons in
the management and controlling the company.
10. A close family member of the arbitrator has a significant
financial interest in one of the parties or an affiliate of one of
the parties.
11. The arbitrator is a legal representative of an entity that is
a party in the arbitration.
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12. The arbitrator is a manager, director or part of the
management, or has a similar controlling influence in one of
the parties.
13. The arbitrator has a significant financial interest in one of
the parties or the outcome of the case.
14. The arbitrator regularly advises the appointing party or an
affiliate of the appointing party, and the arbitrator or his or
her firm derives a significant financial income therefrom.
RELATIONSHIP OF THE ARBITRATOR TO THE DISPUTE
15. The arbitrator has given legal advice or provided an
expert opinion on the dispute to a party or an affiliate of one
of the parties.
16. The arbitrator has previous involvement in the case.
ARBITRATOR'S DIRECT OR INDIRECT INTEREST IN
THE DISPUTE
17. The arbitrator holds shares, either directly or indirectly, in
one of the parties or an affiliate of one of the parties that is
privately held.
18. A close family member of the arbitrator has a significant
financial interest in the outcome of the dispute.
19. The arbitrator or a close family member of the arbitrator
has a close relationship with a third party who may be liable
to recourse on the part of the unsuccessful party in the
dispute.
Explanation 1.--The term "close family member" refers to a
spouse, sibling, child, parent or life partner.
Explanation 2.--The term "affiliate" encompasses all
companies in one group of companies including the parent
company.
Explanation 3.--For the removal of doubts, it is clarified that
it may be the practice in certain specific kinds of arbitration,
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such as maritime or commodities arbitration, to draw
arbitrators from a small, specialised pool. If in such fields it is
the custom and practice for parties frequently, to appoint the
same arbitrator in different cases, this is a relevant fact to be
taken into account while applying the rules set out above."
(Emphasis added)
9. Mr. Rajiv Kumar, learned Senior Counsel and Mr. Mustafa Doctor,
learned Senior Counsel both have heavily relied on the decision of the
Supreme Court in HRD Corporation (supra). Mr. Rajiv Kumar, learned
Senior Counsel has relied on Paragraph Nos.11 and 12 and Mr. Mustafa
Doctor, learned Senior Counsel has relied on Paragraph Nos.10, 11, 12,
20 and 21 of the said decision. In Paragraph No.10, Sections 12, 13 and
14 are set out. In Paragraph No.11, the Fifth, Sixth and the Seventh
Schedules have been set out. Thus, the said Paragraphs are not required
to be reproduced. The relevant Paragraphs on which the reliance is
placed by both the learned Senior Counsel are Paragraph Nos.12, 20
and 21. Apart from the same, certain other Paragraphs are also relevant.
Thus, the relevant Paragraphs are Paragraph Nos.12, 13, 16, 17, 20 and
21. The said Paragraphs of HRD Corporation (supra) are reproduced
herein below for ready reference:-
"12. 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
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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. It is clear, therefore, that any
challenge contained in the Fifth Schedule against the
appointment of Justice Doabia and Justice Lahoti cannot be
gone into at this stage, but will be gone into only after the
Arbitral Tribunal has given an award. Therefore, we express
no opinion on items contained in the Fifth Schedule under
which the appellant may challenge the appointment of either
arbitrator. They will be free to do so only after an award is
rendered by the Tribunal.
13. Confining ourselves to ineligibility, it is important to
note that the Law Commission by its 246th Report of August
2014 had this to say in relation to the amendments made to
Section 12 and the insertion of the Fifth and Seventh
Schedules:
"59. The Commission has proposed the requirement of
having specific disclosures by the arbitrator, at the stage of
his possible appointment, regarding existence of any
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relationship or interest of any kind which is likely to give
rise to justifiable doubts. The Commission has proposed the
incorporation of the Fourth Schedule, which has drawn
from the red and orange lists of the IBA Guidelines on
Conflicts of Interest in International Arbitration, and which
would be treated as a "guide" to determine whether
circumstances exist which give rise to such justifiable
doubts. On the other hand, in terms of the proposed
Section 12(5) of the Act and the Fifth Schedule which
incorporates the categories from the red list of the IBA
Guidelines (as above), the person proposed to be appointed
as an arbitrator shall be ineligible to be so appointed,
notwithstanding any prior agreement to the contrary. In the
event such an ineligible person is purported to be
appointed as an arbitrator, he shall be de jure deemed to be
unable to perform his functions, in terms of the proposed
Explanation to Section 14. Therefore, while the disclosure
is required with respect to a broader list of categories (as
set out in the Fourth Schedule, and as based on the red and
orange lists of the IBA Guidelines), the ineligibility to be
appointed as an arbitrator (and the consequent de jure
inability to so act) follows from a smaller and more serious
sub-set of situations (as set out in the Fifth Schedule, and
as based on the red list of the IBA Guidelines).
60. The Commission, however, feels that real and genuine
party autonomy must be respected, and, in certain
situations, parties should be allowed to waive even the
categories of ineligibility as set in the proposed Fifth
Schedule. This could be in situations of family arbitrations
or other arbitrations where a person commands the blind
faith and trust of the parties to the dispute, despite the
existence of objective "justifiable doubts" regarding his
independence and impartiality. To deal with such
situations, the Commission has proposed the proviso to
Section 12(5), where parties may, subsequent to disputes
having arisen between them, waive the applicability of the
proposed Section 12(5) by an express agreement in
writing. In all other cases, the general rule in the proposed
Section 12(5) must be followed. In the event the High
Court is approached in connection with appointment of an
arbitrator, the Commission has proposed seeking the
disclosure in terms of Section 12(1) and in which context
the High Court or the designate is to have "due regard" to
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the contents of such disclosure in appointing the
arbitrator." "
(Emphasis added)
"16. In Voestalpine Schienen GmbH v. DMRC Ltd.
[Voestalpine Schienen GmbH v. DMRC Ltd., (2017) 4 SCC 665
: (2017) 2 SCC (Civ) 607] , in the context of a Section 11
application made under the Act, this Court had occasion to
delve into the independence and impartiality of arbitrators
and the Guidelines that are laid down in the Fifth and
Seventh Schedules. This Court stated : (SCC pp. 687-89, paras
20-23 & 25)
"20. Independence and impartiality of the arbitrator are
the hallmarks of any arbitration proceedings. Rule against
bias is one of the fundamental principles of natural justice
which applied to all judicial and quasi-judicial proceedings.
It is for this reason that notwithstanding the fact that
relationship between the parties to the arbitration and the
arbitrators themselves are contractual in nature and the
source of an arbitrator's appointment is deduced from the
agreement entered into between the parties,
notwithstanding the same non-independence and non-
impartiality of such arbitrator (though contractually agreed
upon) would render him ineligible to conduct the
arbitration. The genesis behind this rational is that even
when an arbitrator is appointed in terms of contract and by
the parties to the contract, he is independent of the parties.
Functions and duties require him to rise above the partisan
interest of the parties and not to act in, or so as to further,
the particular interest of either parties. After all, the
arbitrator has adjudicatory role to perform and, therefore,
he must be independent of parties as well as impartial. The
United Kingdom Supreme Court has beautifully highlighted
this aspect in Hashwani v. Jivraj [Hashwani v. Jivraj, (2011)
1 WLR 1872 : 2011 UKSC 40] in the following words :
(WLR p. 1889, para 45)
'45. ... the dominant purpose of appointing an arbitrator
or arbitrators is the impartial resolution of the dispute
between the parties in accordance with the terms of the
agreement and, although the contract between the
parties and the arbitrators would be a contract for the
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provision of personal services, they were not personal
services under the direction of the parties.'
21. Similarly, Cour de Cassation, France, in a judgment
delivered in 1972 in Consorts Ury [ (Fouchard, Gaillard,
Goldman on International Commercial Arbitration 562
(Emmanuel Gaillard & John Savage, Eds., 1999) (quoting
Cour de cassation [Cass.] [Supreme Court for judicial
matters] Consorts Ury v. S.A. des Galeries Lafayette, Cass.
2e civ., 13-4-1972, JCP, Pt. II, No. 17189 (1972)
(France)).], underlined that:
'an independent mind is indispensable in the exercise of
judicial power, whatever the source of that power may
be, and it is one of the essential qualities of an arbitrator.'
22. Independence and impartiality are two different
concepts. An arbitrator may be independent and yet, lack
impartiality, or vice versa. Impartiality, as is well accepted,
is a more subjective concept as compared to independence.
Independence, which is more an objective concept, may,
thus, be more straightforwardly ascertained by the parties
at the outset of the arbitration proceedings in light of the
circumstances disclosed by the arbitrator, while partiality
will more likely surface during the arbitration proceedings.
23. It also cannot be denied that the Seventh Schedule is
based on IBA Guidelines which are clearly regarded as a
representation of international based practices and are
based on statutes, case law and juristic opinion from a
cross-section on jurisdiction. It is so mentioned in the
Guidelines itself.
24.
25. Section 12 has been amended with the objective to
induce neutrality of arbitrators viz. their independence and
impartiality. The amended provision is enacted to identify
the "circumstances" which give rise to "justifiable doubts"
about the independence or impartiality of the arbitrator. If
any of those circumstances as mentioned therein exists, it
will give rise to justifiable apprehension of bias. The Fifth
Schedule to the Act enumerates the grounds which may
give rise to justifiable doubts of this nature. Likewise, the
Seventh Schedule mentions those circumstances which
would attract the provisions of sub-section (5) of Section
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12 and nullify any prior agreement to the contrary. In the
context of this case, it is relevant to mention that only if an
arbitrator is an employee, a consultant, an advisor or has
any past or present business relationship with a party, he is
rendered ineligible to act as an arbitrator. Likewise, that
person is treated as incompetent to perform the role of
arbitrator, who is a manager, director or part of the
management or has a single controlling influence in an
affiliate of one of the parties if the affiliate is directly
involved in the matters in dispute in the arbitration.
Likewise, persons who regularly advised the appointing
party or affiliate of the appointing party are incapacitated.
A comprehensive list is enumerated in Schedule 5 and
Schedule 7 and admittedly the persons empanelled by the
respondent are not covered by any of the items in the said
list."
17. It will be noticed that Items 1 to 19 of the Fifth
Schedule are identical with the aforesaid items in the Seventh
Schedule. The only reason that these items also appear in the
Fifth Schedule is for purposes of disclosure by the arbitrator,
as unless the proposed arbitrator discloses in writing his
involvement in terms of Items 1 to 34 of the Fifth Schedule,
such disclosure would be lacking, in which case the parties
would be put at a disadvantage as such information is often
within the personal knowledge of the arbitrator only. It is for
this reason that it appears that Items 1 to 19 also appear in
the Fifth Schedule."
"20. However, to accede to Shri Divan's submission that
because the grounds for challenge have been narrowed as
aforesaid, we must construe the items in the Fifth and
Seventh Schedules in the most expansive manner, so that the
remotest likelihood of bias gets removed, is not an acceptable
way of interpreting the Schedules. As has been pointed out by
us hereinabove, the items contained in the Schedules owe
their origin to the IBA Guidelines, which are to be construed
in the light of the general principles contained therein--that
every arbitrator shall be impartial and independent of the
parties at the time of accepting his/her appointment. Doubts
as to the above are only justifiable if a reasonable third person
having knowledge of the relevant facts and circumstances
would reach the conclusion that there is a likelihood that the
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arbitrator may be influenced by factors other than the merits
of the case in reaching his or her decision. This test requires
taking a broad commonsensical approach to the items stated
in the Fifth and Seventh Schedules. This approach would,
therefore, require a fair construction of the words used
therein, neither tending to enlarge or restrict them unduly. It
is with these prefatory remarks that we proceed to deal with
the arguments of both sides in construing the language of the
Seventh Schedule.
21. Coming to the challenge in the present case, Justice
Lahoti's appointment is challenged on the ground that the
arbitrator has been an advisor to GAIL in another
unconnected matter and, therefore, Justice Lahoti should be
removed. In his disclosure statement made on 24-11-2016,
Lahoti, J. had said:
"That on a legal issue between GAIL and another public
sector undertaking, an opinion was given by me to GAIL, in
the year 2014, but it has no concern with respect to the
present matter. I am an arbitrator in a pending matter
between M/s Pioneer Power Ltd. and GAIL (India)
Limited." "
(Emphasis added)
10. Reliance is also placed by both the learned Senior Counsel on the
decision of Ram Kumar (supra) which is decided by the Division Bench
of the Delhi High Court. The relevant Paragraphs are Paragraph Nos.19
and 22 to 24. The same are reproduced herein below :
"19. In terms of Explanation 1 to Section 12(1) of the A&C
Act - the grounds as stated in the Fifth Schedule of the A&C
Act - the learned Sole Arbitrator was required to be guided by
the grounds as stated in the Fifth Schedule of the A&C Act.
Entry 22 of the Fifth Schedule of the A&C Act specifically
provides circumstances where an arbitrator has, within the
past three years, been appointed as an arbitrator on more
than two occasions by either of the parties or their affiliates.
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This Court is unable to accept that such a disclosure is not
mandatory and is merely at the discretion of the arbitrator.
The onus for disclosing the number of matters in which the
learned Sole Arbitrator had been appointed as such, at the
instance of the respondent, rested with the learned Sole
Arbitrator. The assumption that the burden to ascertain the
circumstances that may give rise to justifiable doubts as to the
independence and impartiality of the arbitrators is on the
parties, is erroneous; this disclosure is necessarily required to
be made by the person approached in connection with his
appointment as an arbitrator.
22. It is necessary to note that the language of Section
12(1) of the A&C Act does not leave it at the discretion of any
person, approached in connection with being appointed as an
arbitrator, to make the necessary disclosures. The use of the
words "he shall disclose" in Section 12(1) of the A&C Act
makes it mandatory for the person who is approached in
connection with his possible appointment as an arbitrator, to
make a disclosure of all circumstances that may give rise to
justifiable doubts as to his independence and impartiality.
23. In terms of Explanation 2 to Section 12(1) of the A&C
Act, such disclosure is to be made in the form specified in the
Sixth Schedule of the A&C Act. It may be sufficient
compliance of the Explanation if the necessary particulars, as
required to be disclosed in the Sixth Schedule, are disclosed
but the disclosure is not in the format as provided. However,
it would be erroneous to assume that the requirement of
making a disclosure is not mandatory.
24. This Court is of the view that the requirement of
making a disclosure is a necessary safeguard for ensuring the
integrity and efficacy of an arbitration as an alternate dispute
resolution mechanism and is not optional."
(Emphasis supplied)
11. Both the learned Senior Counsel also relied on the decision of the
Andhra Pradesh High Court in Rashtriya Ispat Nigam Ltd. (supra). The
important Paragraphs are Paragraph Nos.31 to 37, 39, 47, 48, 51, 55
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and 56, which are reproduced herein below :-
"31. In, "UNION OF INDIA v. SANJAY JETHI" it was held
that the fundamental facit of the principle of the natural
justice is that even in case of the quasi judicial proceedings,
the authority empowered to decide a dispute between the
contesting parties has to be free from bias. When free from
bias is mentioned, it means there should be absence of
conscious or unconscious prejudice to either of the parties as
held in Gullappalli Nageswara Rao v. State of A.P..
32. In "Manak Lal v. Prem Chand Singhvi", the Court has
stated thus:
"... It is well settled that every member of a tribunal that is
called upon to try issues in judicial or quasi-judicial
proceedings must be able to act judicially; and it is of the
essence of judicial decisions and judicial administration
that Judges should be able to act impartially, objectively
and without any bias. In such cases the test is not whether
in fact a bias has affected the judgment; the test always is
and must be whether a litigant could reasonably apprehend
that a bias attributable to a member of the Tribunal might
have operated against him in the final decision of the
Tribunal. It is in this sense that it is often said that justice
must not only be done but must also appear to be done."
33. In "Halsbury's Laws of England", it has been observed
as under:
"... The test for bias is whether a reasonable intelligent
man, fully appraised of all the circumstances, would feel a
serious apprehension of bias".
34. In "Transport Deptt. v. Munuswamy Mudaliar", while
dealing with the concept of bias as a part of natural justice,
the Court observed as, ... "A predisposition to decide for or
against one party, without proper regard to the true merits of
the dispute is bias. There must be reasonable apprehension of
that predisposition. The reasonable apprehension must be
based on cogent materials". Needless to say, personal bias is
one of the limbs of bias, namely, pecuniary bias, personal bias
and official bias.
35. In R.A. Mehta case, it was further observed as under:
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"In the event that actual proof of prejudice is available, the
same will naturally made the case of a party much stronger,
but the availability of such proof is not a necessary
precondition, for what is relevant, is actually the
reasonableness of the apprehension in this regard in the
mind of such party. In case such apprehension exists the
trial/judgment/order, etc. Would stand vitiated for want of
impartiality and such judgment/order becomes a nullity.
The trial becomes coram non judice".
36. Similar such views came to be expressed by the Apex
Court in, "Chandra Kumar Chopra v. Union of India", wherein
it was held as under:
"... mere suspicion or apprehension is not good enough to
entertain a plea of bias. It cannot be a facet of one's
imagination. It must be in accord with the prudence of a
reasonable man. The circumstances brought on record
would show that it can create an impression in the mind of
a reasonable man that there is real likelihood of bias. It is
not to be forgotten that in a democratic polity, justice in its
conceptual eventuality and inherent quintessentiality forms
the bedrock of good governance. In a democratic system
that is governed by the rule of law, fairness of action,
propriety, reasonability, institutional impeccability and non-
biased justice delivery system constitute the pillars on
which its survival remains in continuum".
37. From the Judgments referred to above, it is very clear
that even the quasi judicial authorities or members of a
Tribunal should try judicially and act judicially. Ultimately, the
test is whether a litigant could reasonably apprehend that a
bias attributable to a member of the tribunal might have
operated against him in the final decision of the tribunal. Bias
is a facet of law, which forms part of principles of natural
justice. Therefore, it is a fundamental requirement of law that
the principles of natural justice be complied with as it is an
integral part of the justice delivery system of this country. "
"39. The question now is, whether the Petitioners were
justified in making an application under section 14 of the Act,
when the arbitrary tribunal failed to pass an order on merits
in the petition filed under section 12 and 13 of the Act? One
another question, which requires to be noted, is whether the
provisions of the 1996 Act or the provisions of 2015 Act will
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be applicable to the case on hand? "
"47. Section 14 of the Act, 1996 postulates failure or
impossibility to act--, the mandate of an arbitrator shall be
terminated 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.
The meaning of the word de jure was explained by the
Division Bench of the High Court of judicate at Hyderabad for
the State of Telangana and for the State of Andhra Pradesh in
"Gurcharan Singh Sahney v. Harpreet Singh Chabbra" as
under:
"The Court does not terminate the mandate of an
arbitrator. It stands terminated on the happening of anyone
of the events referred to in Section 14(1), and the Court
only declares it. (Ram Chandra Rungta v. Ram Swarup
Rungta). Use of the word "or" between the kinds of
eventualities in Section 14(1)(a) show that they are
disjunctive. The mandate of the arbitrator would terminate
by the occurrence of anyone of the events prescribed in
sub-clause (a) which is either (i) his becoming de jure or de
facto unable to perform his functions or, (ii) for other
reasons, he fails to act without delay. (Priknit Retails23).
While deciding a petition under Section 14(2) of the Act,
all that the Court does is to declare whether termination of
the mandate of the arbitrator ipso jure has taken place or
not. To that extent, the order of the Court under Section
14(2) of the Act is merely declaratory, and is not in the
nature of a mandatory or perpetual injunction restraining a
person from acting as an arbitrator. A declaration that the
mandate of the arbitrator stands terminated does not
amount to his removal by the Court. (Alcove Industries Ltd.
v. Oriental Structural Engineers Ltd.)"
48. The High Court at Hyderabad also observed as under:
"The first limb of Section 14(a) of the Act stipulates that
the mandate of arbitrator shall terminate if he becomes
dejure or defacto unable to perform his functions. As per P.
Ramanatha Aiyar's Advanced Law Lexicon, Volume 2, page
1215 defines "de facto" to mean, in fact; actually;
frequently used in contradistinction to de jure meaning
rightful, legitimate, lawful; antithetical to de jure; de facto
signifies a thing actually done; that is done in deed; actual;
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existing in fact; having effect even though not formally or
legally recognized; and by virtue of existence, rather than
any legal right. (OPBK Construction Pvt. Ltd. 11). The word
"de jure" has been defined in Black's Law Dictionary 5th
Edition as descriptive of a condition in which there has
been total compliance with all requirements of law, of right;
legitimate; lawful; by right and just title. Ramanath Iyer -
The Law Lexicon defines the word "de jure" - as of right; by
law; legitimate; lawful; by right and just title. By use of the
word become, section 14(1)(a) has been made applicable
only to a situation arising after the arbitrator has been
appointed to resolve the dispute between the parties. The
word unable means incapable, ineffective, useless. Section
14(1)(a) is attracted only when an arbitrator becomes
incapable, either in law or in fact, of performing his
functions."
51. In HRD Corporation's case (supra) while referring to
Section 12(5) read with 7th schedule held that if arbitrator is
ineligible, falling under any of the categories specified in the
schedule, he becomes ineligible to act as an arbitrator and as
such an application under Section 14(1)(a) to be made as he
became de jure unable to perform, instead of moving an
application under Section 13. In the instant case, as observed
by us earlier, the appointment of the arbitrator was prior to
the amendment, hence an application was made for
termination of mandate of the Arbitrator under Section 12(3)
read with Section 13(2), which was disallowed on the ground
that the arbitral tribunal cannot decide the said issue. As one
of the Member has already made up his mind by preparing a
note running into 33 pages (as good as award) moved an
application under Section 14 before the Court, which was not
entertained on technicalities. It was observed that once an
application is made under Section 13, the petitioner has no
other option except to challenge the mandate of the arbitrator
after award is passed. It is no doubt true that an application
under Section 13 was made, but the same was not decided on
merit and it was disallowed on the ground that it cannot
decide the same. Things would have been different had an
order been passed rejecting the request on merits, holding
that there is nothing wrong in arbitrator proceeding with the
matter. Having regard to the fact situation, the application
under Section 14 seeking termination of the mandate has to
be treated as independent application, de hors the one made
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under Section 12 read with Section 13(2) of the Act. Further,
a reading of the judgment of the Apex Court in HRD
Corporation's case makes it clear that if a challenge made
under Section 13 is unsuccessful and the arbitral tribunal
decides that there are no justifiable doubts as to
independence or impartiality of the tribunal, the arbitral
proceedings shall continue and make an award. But, if there
is a doubt about impartiality and independence and as the
same goes to the root of the matter, the arbitral tribunal
become ineligible under Section 14(1)(a) and he becomes de
jure unable to perform his functions and it is not necessary to
go to the Tribunal under Section 13. Taking a cue from the
above and applying the ratio laid therein to the case on hand
and as no order on merits was passed, when an application
was moved before the Tribunal under Section 13, the
argument of the learned counsel for the respondent that
petitioner has to wait till an award is passed to challenge the
mandate of the arbitrator may not be correct."
"55. At this stage, it would be apt to refer to the judgment
of Delhi High Court in "National Highways Authority of India
v. K.K. Sarin", wherein it has been held as under:
"I have already in Sharma Enterprises v. National Buiding
Constructions Corporation Ltd. held that section 5 of the
1940 Act as interpreted in Panchu Gopal Bose (supra) finds
place in the form of section 14 of the 1996 Act. There can
be no other interpretation of the power given to the court
to terminate the mandate of the arbitrator when the
arbitrator de jure is unable to perform this function. The de
jure impossibility can be nothing but impossibility in law.
Bias vitiates the entire judicial/arbitration process and
renders the entire proceedings nugatory. Reference in this
regard may also be made to State of West Bengal v.
Shivananda Pathak, 1988 1 SCR 811 cited by the ASG,
though in a different context, holding that all judicial
functionaries have necessarily to decide a case with an
unbiased mind; an essential requirement of a judicial
adjudication is that judge is impartial and neutral and in a
position to apply his mind objectively - If he is predisposed
or suffers from prejudices or has a biased mind he
disqualifies himself from acting as a Judge. This equally
applies to arbitrators, as statutorily provided in sections 12
and 13. In my opinion, if the arbitrator is biased, he is de
jure unable to perform his functions within the meaning of
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section 14. Thus, if the court without any detailed enquiry
is able to reach a conclusion of arbitrator for the reason of
bias is unable to perform his functions, the court is
empowered to, without requiring the parties to inspite of so
finding go through lengthy costly arbitration, hold that the
mandate of arbitrator stands terminated. However, the said
power under section 14 has to be exercised sparingly with
great caution and on the same parameters as laid down by
Apex Court in SBP & Company v. Patel Engineering Limited,
(2005) 8 SCC 618 in relation to section 11(6). Only when
from the facts there is no doubt that a clear case of bias is
made out, would the court be entitled to interfere. Else it
would be best to leave it to be adjudicated at the stage of
Section 34".
56. Facts in the said case are identical to the case on hand.
In the instant case, application under Sections 12 and 13 of
the Act was moved, but the issue raised was not decided on
merits holding that Tribunal cannot go into the said issue.
Thereafter, an application was moved before the Court under
Section 14 of the Act. The de jure impossibility in our view,
and as held in the judgments referred to above would be
"impossibility in law" or "incapable either in law or on facts".
The word de jure as defined in Black's Law Dictionary is
descriptive of a condition in which there has been total
compliance with all the requirements of law. It is also well
established that bias vitiates the entire proceedings including
arbitral proceedings making it nugatory. The objective of the
judicial or quasi judicial proceedings is to render justice or
decide a case with an unbiased mind and be impartial. This
principal of one getting disqualified if he is biased or suffers
from prejudices, applies to all adjudicating authorities and
arbitrators are no exception. Therefore, our view that if the
arbitrator acts in a biased manner, he is de jure
incapacitated/unable to perform his function under Section
14 of Act gets support from the view expressed in National
Highways Authority of India's case. We are also aware that
such a power is to be exercised sparingly and with caution. As
the material on record amply establish that the fourth
respondent acted in a biased manner, we feel that in the facts
of the case the petitioners were justified in invoking Section
14 of the Act seeking termination of the Arbitrator."
(Emphasis supplied)
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12. Although Mr. Rajiv Kumar, learned Senior Counsel has also relied
on the decision of Alcove Industries Ltd. (supra) and more particularly
on Paragraph Nos.26, 30 and 31, it is the submission of Mr. Mustafa
Doctor, learned Senior Counsel that the said decision has been decided
before the 2016 Amendment and also before the decision of the
Supreme Court in HRD Corporation (supra) and therefore the same is
not relevant. The relevant Paragraphs of the said decision i.e. Paragraph
Nos.30 and 31 are reproduced herein below:-
"30. It is often said that haste makes waste. The object of
the Act is not merely to see that, good or bad, an arbitral
award comes into existence at the earliest. The object is to see
that the proceedings come to a finality without the
intervention of the Court, unless such intervention by the
Court is warranted in a given case and the same is permitted
by the law. It would serve no purpose, and would rather be a
wasteful expense of time and resources, if the arbitral
proceedings which ought to be interdicted are allowed to
continue and culminate into an award, which would not stand
scrutiny in the eyes of law. A stitch in time saves nine.
Therefore, if a lacuna is found in the arbitral proceedings,
such as, a justifiable apprehension of bias of an Arbitrator, it
would be best to see that the law (as contained in Section 14
of the Act) is given effect to with promptitude and a
declaration made of the event that has, in law, already taken
place i.e. the termination of the mandate of the Arbitrator
and, if the facts of the case so warrant, to substitute or
facilitate the substitution of another independent Arbitrator so
that the proceedings can be held in a legal and sustainable
manner.
31. Those who are opposed to any kind of intervention by
the Court during the pendency of the arbitral proceedings,
even when the same, and to the extent the same is expressly
permitted by the law, fail to see that timely interference by the
court in deserving cases leads to saving of time rather than its
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wastage, between the point in time that the arbitration
proceedings commence and up till the time when the arbitral
award becomes enforceable as a decree of the Court. An
award does not become enforceable till the objections thereto
under Section 34 of the Act are dismissed, if preferred. Even if
the stage for holding an enquiry with regard to the
termination of mandate of an Arbitrator is postponed to the
post award stage i.e. under Section 34 of the Act, that enquiry,
in any event, would have to be undertaken and would
consume the same amount of time, effort and expense, and
lead to the same result, as a petition under Section 14 of the
Act would take, if is entertained during the pendency of the
arbitral proceedings. Therefore, to my mind it would not
adversely impact the amount of time it takes to bring the
arbitral award to fruition. On the other hand, timely surgery
could remove the malingent and fatal lacunas in the arbitral
proceedings and set them on the right course to produce an
award bereft of such infirmities. After all, this enquiry would
have to be taken once, whether it is under Section 14 or
section 34 of the Act. If it is undertaken under Section 14 and
it fails, the said finding would obviously bind the parties and
the objecting party would be precluded from raising the same
all over again on the same facts and circumstances."
13. Both the learned Senior Counsel have also pointed out the
decision of the learned Single Judge of the Delhi High Court in Larsen &
Toubro Ltd. (supra). Mr. Rajiv Kumar, learned Senior Counsel has relied
on Paragraph Nos.19, 21, 23 and 28.3 of the said decision, whereas Mr.
Mustafa Doctor, learned Senior Counsel has relied on Paragraph Nos.24
and 28.3 of the same. The relevant discussion is found in Paragraph
Nos.23 and 28.3 which are reproduced herein below for ready
reference:-
"23. In my view, the answer to this issue lies in a bare
reading of the provisions of Sections 12 and 13 of the 1996
Act. Section 12(1) makes it incumbent upon the person who
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is approached for being appointed as an arbitrator to disclose
in writing any circumstances which would give rise to
justifiable doubts as to his independence or impartiality and
whether such circumstances would affect his ability to devote
sufficient time to arbitration to complete the entire arbitral
proceedings within the prescribed time limit. The person
concerned with regard to the first aspect is to bear in mind
the provisions of the 5th Schedule while ascertaining for
himself as to whether his appointment could give rise to
justifiable doubts as regards his independence or impartiality
to act as an arbitrator.
23.1. Once the person concerned makes such an assessment,
he is required to make a disclosure to that effect in the form
specified in the 6th Schedule. The grounds for challenging the
appointment of the arbitrator are prescribed in Section 12(3).
The two grounds available are those prescribed in clause (a)
and (b) of subsection (3) of Section 12, that is, whether
circumstances exist which could give rise to justifiable doubts
as to his independence or impartiality or he does not possess
the requisite qualifications agreed to by the parties.
23.2. Subsection (4) of Section 12 gives a right even to a
party who may have appointed or participated in the
appointment of the arbitrator to challenge his appointment if
he can demonstrate that he became aware of the grounds of
the challenge after the appointment was made.
23.3. The procedure for laying a challenge to the
appointment of the arbitrator as per Section 13(1) can either
be that which is agreed upon by the parties subject to the
caveat provided in subsection (4) of Section 12 or can be
mounted before the arbitrator in terms of Section 13(2) by
lodging a written statement of reasons for challenge with the
arbitrator within fifteen days of acquiring knowledge of the
Constitution of the arbitral tribunal or of the circumstances
referred to in Section 12(3).
23.4. In such circumstances, the arbitrator is obliged to
decide the challenge made to his appointment unless he
withdraws from his office or the opposite party agrees to the
challenge (See Section 13(3) of the 1996 Act).
23.5. However, Section 13(4) provides that if the challenge
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is repelled, then, the arbitral proceedings should continue and
the concerned tribunal should accordingly render an award.
23.6. In such circumstances, leeway is given to the
aggrieved party whose challenge is repelled to raise grounds
available for challenging the appointment of the arbitrator in
terms of Section 13(5) under Section 34 once an award is
rendered in the matter.
28.3. Since the appointment procedure is inherently tilted in
favour of the PWD, which does not allow for the appointment
of an independent and impartial arbitrator, in my opinion, the
provisions of Section 14(1)(a) of the 1996 Act would get
attracted. In my view, the disablement of an arbitrator under
clause (a) of subsection (1) of Section 14 takes within its fold
not only the ineligibility criteria prescribed under the 7 th
Schedule but also those aspects which although do not fall
within the ambit of the entries set out in 7 th Schedule but lend
support to the plea, as in this case, that the appointee-
arbitrator would be anything but impartial and/or
independent."
14. Mr. Mustafa Doctor, learned Senior Counsel submitted that the
decision of the Supreme Court in HRD Corporation (supra) deals with
the 2016 Amendment and specifically sets out in Paragraph No.12 the
manner in which the Application of such a nature is required to be
considered. It is his submission that the nature and objection raised by
the Petitioner cannot be considered by this Court particularly as the
learned Arbitrator has decided the objection.
15. It is required to be noted that the decision of HRD Corporation
(supra) makes it clear that dichotomy is made by the 2016 Amendment
of the said Act between a person who becomes ineligible to be
appointed as Arbitrator and the person about whom justifiable doubts
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exist as to his/her independence or impartiality. If a person is ineligible
to be appointed as Arbitrator, the said ineligibility goes to the root of the
appointment. It is held in HRD Corporation (supra) that Section 12(5)
read with the Seventh Schedule to the said Act 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 a person
becomes ineligible to act as Arbitrator, he then becomes ineligible under
Section 14(1)(a) and becomes de jure unable to perform his functions
in as much as, in law, he is regarded as "ineligible". It has been held that
in such a situation it is not necessary to go to the Arbitral Tribunal
under Section 13. As such if a person lacks inherent jurisdiction in such
a case an Application can be filed under Section 14(2) to the Court to
decide on the termination of his/her mandate on the Act. In this
context, it is also relevant to note the observations in the decision of
Larsen & Toubro Ltd. (supra) to the effect that the disablement of an
arbitrator under clause (a) of subsection (1) of Section 14 takes within
its fold not only the ineligibility criteria prescribed under the Seventh
Schedule but also those aspects which although do not fall within the
ambit of the entries set out in Seventh Schedule but lend support to the
plea, as in this case, that the appointee-arbitrator would be anything but
impartial and/or independent.
16. The decision of HRD Corporation (supra) further specifies that if
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the grounds which are raised are as set out in the Fifth Schedule 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 by the Arbitral Tribunal under Section
13. The decision of HRD Corporation (supra) further held that if a
challenge before the Arbitral Tribunal 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. 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.
17. Thus, it is necessary to see in the light of above legal provisions and the
decisions of the Supreme Court and various High Courts, nature and extent of
disclosure required under Section 12 read with Schedule 5 and Schedule 7 of
the said Act and the remedies available to the parties in case of non-adquate
disclosure.
18. The principles which emerge from the above provisions and the
decisions with respect to the nature and the extent of disclosure are as
follows:-
i. The nature of disclosure is to be made in accordance with the
Sixth Schedule, which is set out herein above. It is important to note
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that the Sixth Schedule makes reference to Section 12. Section 12(1)(a)
specifies that a person when approached in connection with his possible
appointment as an Arbitrator he shall disclose in writing existence of
any circumstances either direct or indirect of any past or present
relationship with or interest in any of the parties or in relation to the
subject matter in dispute, whether financial, business, professional or
other kind, which is likely to give rise to justifiable doubts as to his
independence or impartiality. Explanation 1 specifies that the grounds
stated in the Fifth Schedule shall guide in determining whether
circumstances exist which give rise to justifiable doubts as to the
independence or impartiality of an Arbitrator. Explanation 2 to Section
12 specifies that the disclosure shall be made by such person in the form
specified in the Sixth Schedule.
ii. Thus, Section 12(a) contemplates that existence of any past or
present relationship with or interest in any of the parties or in relation
to the subject matter in dispute has to be disclosed. Such interest in any
of the parties or in the subject matter in dispute contemplates financial,
business, professional or other kind. Thus, it is very clear that the
disclosure as contemplated under Section 12(1)(a) is not only
concerning financial, business or professional relations but the same is
of any "other kind". What is significant to note is the term "other kind"
used in Section 12(1)(a). The term "other kind" contemplates the
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relationship or interest of any kind which is apart from financial
relationship, business relationship or professional relationship. Section
12(1) specifically contemplates that when a person is approached in
connection with his possible appointment as an Arbitrator, he shall
disclose in writing any circumstances i.e. all the circumstances.
iii. Thus, the nature of disclosure as contemplated under Section
12(1)(a) read with Section 12(5) is all the circumstances such as the
existence either direct or indirect of any past or present relationship
with or interest in any of the parties or in relation to the subject matter
in dispute, whether financial, business, professional or other kind,
which is likely to give rise to justifiable doubts as to his independence or
impartiality and the persons who are falling under any category
specified in the Seventh Schedule shall be ineligible to be appointed as
an Arbitrator.
iv. Section 12(5) read with the Seventh Schedule makes it clear that
if any person whose relationship with the parties falls under any of the
categories specified in the Seventh Schedule, he become ineligible to act
as Arbitrator.
v. In this context, it is relevant to note the decision of Ram Kumar
(supra). The Paragraph Nos.19, 22, 23 and 24 of the same are very
relevant and are already set out herein above. In Ram Kumar (supra), it
has been held that the requirement of making disclosure is a necessary
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safeguard for ensuring the integrity and efficacy of an arbitration as an
alternate dispute resolution mechanism and the same is not optional.
What has been held that the assumption that burden to ascertain the
existence of the circumstances that may give rise to justifiable doubts as
to the independence or impartiality of the Arbitrators is on the parties is
erroneous and the disclosure is necessarily required to be made by the
persons approached in connection with his appointment as an
Arbitrator. It has been further held that Section 12(1) of the Act does
not leave it at the discretion of the person approached in connection
with his possible appointment as Arbitrator to make the necessary
disclosure. It has been held that Section 12(1) specifies that "he shall
disclose". Thus, it is mandatory for the person who is approached in
connection with his possible appointment as Arbitrator to make the
disclosure of all circumstances that may give rise to justifiable doubts as
to his independence or impartiality. It has been held that the
requirement of making disclosure is a mandatory requirement.
vi. In the case of Rashtriya Ispat (supra), it has been held that the
test is whether a litigant could reasonably apprehend that a bias
attributable to a member of the tribunal might have operated against
him in the final decision of the Tribunal. The test for bias is whether a
reasonable, intelligent man, fully appraised of all the circumstances,
would feel a serious apprehension of bias. Bias as a facet of law forms
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part of the principles of natural justice. Therefore, it is a fundamental
requirement of law that the principles of natural justice be complied
with as it is an integral part of the justice delivery system of this
Country.
vii. In Larsen & Toubro (supra), a learned Single Judge of the Delhi
High Court held that bare reading of the provisions of Sections 12 and
13 and particularly Section 12(1) makes it incumbent upon the person
who is approached for being appointed as an arbitrator to disclose in
writing any circumstances which would give rise to justifiable doubts as
to his independence or impartiality. The person concerned while making
disclosure has to keep in mind the requirement of the Fifth Schedule as
well as the Seventh Schedule.
viii. However, it must also be noted that as set out in Section 12 that
the grounds stated in the Fifth and the Seventh Schedules shall guide
the person proposed to be appointed as Arbitrator in determining the
nature of disclosure contemplated under Section 12(1)(a) i.e. existence
either direct or indirect of any past or present relationship with or
interest in any of the parties or in relation to the subject matter in
dispute, whether financial, business, professional or other kind, which is
likely to give rise to justifiable doubts as to his independence or
impartiality. The very important words in Section 12 are "justifiable
doubts as to his independence or impartiality". It is very significant to
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note that the mandatory duty has been entrusted to the person who has
been approached in connection with his possible appointment as an
Arbitrator to disclose any of the factors which are likely to give rise to
justifiable doubts as to his independence or impartiality. It is very clear
that these factors are even apart from the financial, business or
professional relationship. Section 12(1)(a) clearly specifies disclosure of
all the circumstances concerning relationship or interest in any of the
parties of any kind. Section 12(1)(a) is very clear that existence of
either direct or indirect interest in any of the parties is also required to
be disclosed which is likely to give rise to justifiable doubts as to his
independence or impartiality. Thus, what is contemplated is disclosure
of all the circumstances.
ix. It is also very significant to note that Section 12 contemplates
that the assessment of the person who is approached in connection with
his possible appointment as an Arbitrator to assess himself in relation to
the factors which are set out in Section 12(1) and has to give complete
disclosure, Section 12 makes it very clear that the burden is on the
person who is likely to be appointed as Arbitrator to give complete
disclosure and which is a mandatory duty cast on such a person. Such
person has no discretion to give such information as he thinks necessary.
x. The concept of independence or impartiality are totally different.
As far as the impartiality is concerned, all factors which are directly or
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indirectly to give rise to justifiable doubts as to the impartiality are
required to be disclosed. As already noted the same is the mandatory
duty on such a person and it is very clear that the burden to ascertain
and disclose the circumstances that may give rise to justifiable doubts as
to the independence and the impartiality of the Arbitrator is not on the
parties to the arbitration proceedings. The same is mandatory duty of
the person who is likely to be appointed as Arbitrator.
19. Thus, after ascertaining the nature and extent of disclosure
required under Section 12 read with the Schedule Five and Schedule
Seventh of the said Act, it is necessary to see the remedies available to
the person coming with the case that there is no full disclosure and
justifiable doubts exist as to the independence or impartiality of the
appointed Arbitrator.
20. The Supreme Court in the case of HRD Corporation (supra) has
held that after the 2016 Amendment Act, a dichotomy is made by the
2016 Amendment Act between persons who become "ineligible" to be
appointed as arbitrators, and persons about whom "justifiable doubts"
exist as to their independence or impartiality. The distinction between
these two class of persons i.e. persons who become "ineligible" to be
appointed as arbitrators, and persons about whom "justifiable doubts"
exist as to their independence or impartiality and remedies in that
behalf is explained in HRD Corporation (supra) as follows:
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i. 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.
ii. As opposed to above, 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
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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.
iii. The above position as held in HRD Corporation (supra) is further
explained in the decision of Larsen & Toubro Ltd. (supra), wherein it is
held that the disablement of an arbitrator under clause (a) of subsection
(1) of Section 14 takes within its fold not only the ineligibility criteria
prescribed under the Seventh Schedule but also those aspects which
although do not fall within the ambit of the entries set out in Seventh
Schedule but lend support to the plea, that the appointee-arbitrator
would be anything but impartial and/or independent.
21. Thus, as discussed herein above, the proposed Arbitrator has to
disclose as contemplated under Section 12(1)(a) read with Section
12(5) all the circumstances such as the existence either direct or
indirect of any past or present relationship with or interest in any of the
parties or in relation to the subject matter in dispute, whether financial,
business, professional or other kind, which is likely to give rise to
justifiable doubts as to his independence or impartiality. As noted herein
above, disablement of an arbitrator under clause (a) of subsection (1)
of Section 14 takes within its fold not only the ineligibility criteria
prescribed under the Seventh Schedule but also those aspects which
although do not fall within the ambit of the entries set out in Seventh
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Schedule but lend support to the plea, that the appointee-arbitrator
would be anything but impartial and/or independent.
SECOND POINT :
The extent of disclosure / non-disclosure in this case.
22. Thus, in view of the nature and the extent of disclosure as
contemplated under Section 12, it is necessary to consider the
disclosure / non-disclosure made by Mr. R. A. Shah, learned Arbitrator
in this particular case.
23. The second point which is to be considered by this Court is the
extent of disclosure / non-disclosure in this case. The disclosure made
by Mr. R. A. Shah, learned Arbitrator is annexed to the Petition on Page
Nos.146 to 149 and the same is also annexed to the Affidavit-in-Reply
from Page Nos.518 to 521. The same is reproduced herein below:-
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24. In this behalf, it is also required to note the letter of Mr. R. A.
Shah, learned Arbitrator dated 30th May 2022 addressed to the
Governing Body, Indo - German Chamber of Commerce, and the
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disclosure given by him on 30th May 2022. The said letter is on Page
Nos.544 and 545 of the Affidavit-in-Reply and the same is as under :-
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25. In view of the above disclosures made by Mr. R. A. Shah, learned
Arbitrator, it is the submission of Mr. Rajiv Kumar, learned Senior
Counsel for the Petitioner that what is not disclosed by Mr. R. A. Shah,
learned Arbitrator is that he was a Member of the Managing Committee
of Respondent No.2 since 1993 and shared that position with Mr.
Firodia, the Chairman / Managing Director of the Respondent No.1,
who was a Member of the Managing Committee of the Respondent No.2
since 1995. It was not also disclosed that Mr. Firodia and Mr. R. A. Shah
have been meeting approximately 4 to 5 times a year as members of the
Committee of the Respondent No.2. Thus, it is his submission that, as a
result, there is social familiarity between Mr. Firodia and Mr. R. A. Shah.
It is his submission that even Mr. Firodia had never disclosed his long-
standing association with Respondent No.2 to the Petitioner, when he
strongly recommended the selection of Respondent No.2 as the Arbitral
Institution. It is his submission that, even today, relying on the Affidavit
filed by Mr. Firodia, the Chairman/Managing Director of the
Respondent No.1, both Mr. R. A. Shah and Mr. Firodia continued to be
the Members of the Committee of Respondent No.1. He submits that Mr.
R. A. Shah is a Member of Advisory Council of the Respondent No.2 and
the said fact has not been disclosed and till date Mr. R. A. Shah
continues to be on the Advisory Council of the Respondent No.2. Thus,
it is his submission that as this fact has been suppressed by both Mr. R.
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A. Shah and Mr. Firodia, it is clear that Mr. Firodia and Mr. R. A. Shah
have a relationship in respect of the business of Respondent No.2. It is
further submitted that being on the Advisory Council of Respondent
No.2, Mr. R. A. Shah is obviously acting as an advisor to the Respondent
No.2 and therefore Mr. R. A. Shah is deemed to be in close association
with members of Respondent No.2, concerning the business affairs of
Respondent No.2. It is the submission of the learned Senior Counsel
that the same brings Mr. R. A. Shah, learned Arbitrator in close
proximity with Mr. Firodia, the Chairman and the Managing Director of
the Respondent No.2 with whom he has enjoyed the position as a
member since the year 1993/1995 i.e. almost for three decades. It is his
further submission that as such Member of the Advisory Board, Mr. R. A.
Shah has a controlling influence in matters concerning the Respondent
No.2 as well as its members. As a Member of the Advisory Council, it
goes without saying that Mr. R. A. Shah regularly advises the appointing
party i.e. the Respondent No.2. He submits that all emails concerning
arbitration proceedings have been addressed by the Governing Body
and therefore the Governing Body plays a vital role in the arbitration.
He submits that as per the Rules of Respondent No.2, the Governing
Body has powers stipulated in Rule 3. As per the Rules of Arbitration of
the Respondent No.2, the appointment of arbitrators is to be made
under Rule 6 from the list of arbitrators. The Rules contemplate
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appointment from the list of arbitrators empanelled with the
Respondent No.2. Rule 8 provides for constitution of the Arbitral
Tribunal. The Governing Body of Respondent No.2 takes necessary steps
to have the Arbitral Tribunal constituted for adjudication of the disputes
as per Rule 8.1. Rule 8.4 provides for constitution of the Arbitral
Tribunal by the Governing Body.
26. It is the submission of Mr. Rajiv Kumar, learned Senior Counsel
that on 30th May 2022, Mr. R. A. Shah got himself empanelled as an
Arbitrator on the panel of arbitrators who also held Office as a
Committee Member and Member of the Advisory Council reveals a
position of conflict of interest held by Mr. R. A. Shah. It is his
submission that this combination of holding Offices of Respondent No.2
and acting as an arbitrator compromises Mr. R. A. Shah's ability to give
unbiased and fair decisions.
27. On the other hand, it is the submission of Mr. Mustafa Doctor,
learned Senior Counsel for the Respondent No.1 that the contention
raised by the Petitioner is that the appointment of Mr. R. A. Shah has
been assailed on the ground that justifiable doubt exists as to his
independence or impartiality i.e. under Section 12(3) of the Act read
with the Fifth Schedule and that no case of ineligibility to act or of Mr.
Shah's mandate having come to an end i.e. under Section 12(5) read
with the Seventh Schedule, has even been attempted to be made out
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against Mr. R. A. Shah. Learned Senior Counsel has mainly relied on the
decision of HRD Corporation (supra). On the basis of the said decision,
it is his submission that the 2016 Amendment to the Act has created a
dichotomy between the persons who become "ineligible" to be
appointed as an Arbitrator and person against whom "justifiable
doubts" exist as to their independence or impartiality. It is his
submission that the Supreme Court, in the said decision, has held that it
is only cases where an Arbitrator becomes ineligible, which fall under
the provisions of Section 14(1)(a) of the Act and that in all other cases
the application is required to be made before the Arbitral Tribunal and
if such an application is rejected, the law mandates that the Arbitral
Tribunal must continue the arbitral proceedings and make an award. It
is only after such award is made that a party may make an application
for setting aside the arbitral award in accordance with Section 34 of the
Act.
28. It is the submission of Mr. Mustafa Doctor, learned Senior Counsel
that the disclosure contemplated under the provisions of the said Act is
made. He submits that the disclosure which according to the Petitioner
has not been made is not required to be made. In any case, it is the
submission of Mr. Mustafa Doctor, learned Senior Counsel that, in any
event, the said matter entirely falls within the scope of Section 13(6) of
the said Act and therefore within the scope of jurisdiction of the Arbitral
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Tribunal.
29. It is also submission of Mr. Mustafa Doctor, learned Senior
Counsel that the declaration made by Mr. R. A. Shah, learned Arbitrator
is complete in all respects. Mr. Shah while making the declaration and
disclosure is required to be guided by the Fifth Schedule and the
Seventh Schedule of the Act. By relying on the decision of Chennai
Metro (supra), it is submitted by Mr. Mustafa Doctor, learned Senior
Counsel that Mr. Shah had at all relevant times made a disclosure with
respect to his being on the Managing Committee of the Respondent
No.2. This fact was known to the Petitioner at all relevant times
contrary to the arguments now sought to be put forth by them. It is his
submission that averment made in Paragraph No.18(iv) and 33 of the
application filed before the Hon'ble Tribunal, clearly shows the said
knowledge. Mr. Mustafa Doctor, learned Senior Counsel pointed out
Paragraph No.2.6.3 of the Respondent No.1's Affidavit-in-Reply to the
Petitioner's Application filed before the learned Arbitral Tribunal and
submitted that the Managing Committee of the Respondent No.2
consists of 27 people who meet four to five times a year. The fact that
Mr. Shah and Mr. Firodia both serve on this Committee cannot by itself
be a ground to create justifiable doubts as to the independence and
impartiality of Mr. R. A. Shah and was therefore not required to be
disclosed. He also pointed out the statement made by the Respondent
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No.1 to the effect that Mr. Firodia and Mr. Shah have no connection or
relationship with one another and that neither Mr. Shah nor the firm of
which he is a partner i.e. Crawford Bayley & Co. have even been
engaged by Dr. Firodia or the Respondent No.2 to render any legal
advice or services to Respondent No.2. It is his submission that
therefore none of the tests as laid down in Section 12 read with the
Fifth and the Seventh Schedules to the Act are applicable to the facts
and circumstances of the present case. It is his further submission that
Mr. R. A. Shah had disclosed that he was a Member of the Respondent
No.2's Managing Committee.
30. As noted herein above, the requirement of making disclosure as a
necessary safeguard for ensuring the integrity and efficacy of an
arbitration as an alternate dispute resolution mechanism is mandatory
and the same is not optional. It is also settled legal position that the
burden to ascertain that circumstances that may give rise to justifiable
doubts as to the independence or impartiality of the Arbitrators is on
the parties is erroneous and the disclosure is necessarily required to be
made by the persons approached in connection with his appointment as
an Arbitrator. It is settled legal position that Section 12(1) of the Act
does not leave it at the discretion of any person approached in
connection with being appointed as Arbitrator to make the necessary
disclosures. It has been held that Section 12(1) specifies that "he shall
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disclose". Thus, it is mandatory for the person who is approached in
connection with his possible appointment as Arbitrator to make a
disclosure of all circumstances that may give rise to justifiable doubts as
to his independence or impartiality. Thus, the requirement of making
disclosure is a mandatory requirement.
31. As noted earlier, the very important words in Section 12 are
"justifiable doubts as to his independence or impartiality". Thus, it is the
mandatory duty of the person who has been approached in connection
with his possible appointment as an Arbitrator to disclose any of the
factors which are likely to give rise to justifiable doubts as to his
independence or impartiality. As already noted herein above, Section
12(1)(a) specifies the factors that financial, business, professional or
other kind which is likely to give rise to justifiable doubt as to his
independence or impartiality. The words "other kind" clearly shows that
what is contemplated is the disclosure of financial, business,
professional or combination of the same or relationship or interest of
any other kind is required to be disclosed.
32. In this particular case, admitted position is as follows :-
i. Mr. Firodia is the Managing Director of the Respondent No.1.
ii. Mr. Firodia and Mr. R. A. Shah, learned Arbitrator both are
the Members of the Committee of the Respondent No.2 - Indo
- German Chamber of Commerce (IGCC) since 1993/1995.
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Thus, they are associated with each other for last about 30
years.
iii. Mr. R. A. Shah is the Member of the Advisory Council of the
Respondent No.2.
iv. It is undisputed that Mr. R. A. Shah is the Member of the
Respondent No.2 since 1993 and Mr. Firodia is the Member of
the Respondent No.2 since 1995. Thus, for almost about 30
years they are associated with each other in their capacity as
Members of the Respondent No.2.
v. It has also come on record that meetings of Members of the
Respondent No.2 are held approximately four to five time a
year.
Thus, there is substance in the contention raised by Mr. Rajiv
Kumar, learned Senior Counsel that as a result there is social familiarity
between Mr. Firodia and Mr. R. A. Shah. It is required to be noted that
the said relationship is since 1995.
33. With the above background of the matter, if the disclosure of Mr.
R. A. Shah (Page No.146) is seen, he has disclosed that he has no
financial, business, professional or other kind of relationship either in
the past or present in relation to the subject matter of the dispute
between the Petitioner and Respondent No.1 or interest of any kind
with these parties in relation to the subject matter. To the said
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disclosure, a Profile of Mr. R. A. Shah has been annexed. In the said
Profile, it is disclosed that he is the Member of the Managing Committee
of various Commerce & Industry Associations such as Indo - German
Chamber of Commerce i.e. the Respondent No.2. However, very
significant disclosure that Mr. Firodia is also a Member of the said Indo
- German Chamber of Commerce since 1995 is not disclosed. It is
significant to note that there are only 27 members of the Respondent
No.2.
34. It is also significant to note that Respondent No.2 is the arbitral
institution with which both, Mr. R. A. Shah i.e. the learned Arbitrator
and Mr. Firodia, the Managing Director of Respondent No.1 are
associated with as Member for last 30 years. Thus, in the facts and
circumstances, it has to be held that the disclosure made by Mr. R. A.
Shah, the learned Arbitrator is not a complete disclosure.
35. Mr. Mustafa Doctor, learned Senior Counsel has submitted that,
as noted herein above, this relationship between Mr. R. A. Shah and Mr.
Firodia is not at all relevant and therefore not required to be disclosed
and non - disclosure of the same has no effect on the independence or
impartiality of Mr. R. A. Shah to act as an Arbitrator. However, it is
required to be noted that as per Section 12 it is the complete
responsibility of the person who has been approached in connection
with his possible appointment as an Arbitrator to disclose any of the
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factors which are likely to give rise to justifiable doubts as to his
independence or impartiality. Mr. R. A. Shah has disclosed that he is a
Member of the Managing Committee of the Respondent No.2. However,
admittedly, he has not disclosed that Dr. Firodia i.e. the Managing
Director of the Respondent No.1 is also a Member of the Respondent
No.2 and both of them are working together as a Member of the
Respondent No.2 for last about 30 years. The association of Mr. R. A.
Shah, learned Arbitrator and Mr. Firodia, the Managing Director of
Respondent No.1 for a period of 30 years is a very long association and
therefore it cannot be said that the said factor is irrelevant factor and
should not have been disclosed. It cannot be said that non-disclosure of
the same is totally irrelevant.
36. It is also an admitted position that the Respondent No.2 conducts
institutional arbitration proceedings under its Indo - German Chamber
of Commerce Arbitration Center as per its Rules of Arbitration and the
present arbitration proceedings are being conducted under the said
Rules. Admittedly, Mr. R. A. Shah is the member of the Governing Body.
The powers and duties of the Governing Body are specified in Rule 3 of
the Rules of Arbitration of the Indo - German Chamber of Commerce
("Indo-German Rules"), which reads as under :-
"3. Powers and Duties of the Governing Body:
3.1. The Governing Body shall:
3.1.1. receive all communications addressed to IGCCAC,
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Governing Body and the Arbitral Tribunals;
3.1.2. liaise, coordinate and facilitate communication
between the Governing Body and the Arbitral
Tribunals;
3.1.3. communicate the decisions and directions of the
Governing body and the Arbitral Tribunals to the
Parties;
3.1.4. communicate with the Parties on administration of the
arbitration proceedings;
3.1.5. receive payment of fees and deposits;
3.1.6. maintain such other books or memoranda and
maintain such other records as the Governing Body
may from time to time require.
3.2. The Governing Body may delegate to any officer of the
Governing Body such of the functions and
administrative duties of the Governing Body as are
deemed proper and necessary from time to time.
However, it is clarified that any delegation of powers
shall not affect the procedure to file correspondences
which shall, at all times, be addressed to the Chamber.
3.3. The Governing Body shall make necessary
arrangements for the service of an interpreter upon
the request of one or more of the Parties and the costs
thereof shall form part of the costs of arbitration as
mentioned in the Schedule."
(Emphasis added)
37. Thus, it is clear that very important powers concerning Indo-
German Chamber of Commerce have been assigned to the Governing
Body including receiving payment of fees and deposits. It is also an
admitted position that both, Dr. Firodia, Managing Director of the
Respondent No.1 and Mr. R. A. Shah, learned Arbitrator are the
Members of the Governing Body of Respondent No.2 - IGCCAC. It is an
admitted position that Mr. R. A. Shah is a Member since 29th October
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1993 (Page No.150) and Mr. Abhaykumar Navalmal Firodia is a
Member since 2nd February 1995 (Page No.150) and they continues to
be the Members of the Respondent No.2 till date. There are only 29
Members of the Respondent No.2 as per the Company Master Data
which is annexed at Page Nos.150 and 151. Both of them are amongst
the oldest Members. The analysis of the information as available on the
Company Master Data on the website of Company Registrars (Pages
150-151) shows as follows :-
Sr. Joining Year Number of
No. Directors/Members
Joined
38. Thus, it is clear that there were very few Members in 1993/1995.
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Till the year 2000 there were only 4 members, till the year 2007 there
were only 7 members, till the year 2013 there were only 9 members.
Thus, it is clear that the association between Mr. R. A. Shah and Dr.
Firodia is very old and close. In any case, the same should have been
disclosed in the disclosure. Thus, it has to be held that Mr. R. A. Shah,
learned Arbitrator failed to disclose very important and significant
aspects. The fact that Mr. R. A. Shah being Member with Dr.
Abhaykumar Firodia, Chairman and the Managing Director of the
Respondent No.1 since 1995 with Respondent No.2 has not been
disclosed. It has not been disclosed that they are the Members of the
Governing Body of the Respondent No.2.
39. Thus, the above factual aspects clearly show that Mr. R. A. Shah,
learned Arbitrator failed to disclose all the circumstances, the existence
either direct or indirect of any past or present relationship with or
interest in any of the parties, whether financial, business, professional
or other kind which is likely to give rise to justifiable doubts as to his
independence or impartiality.
THIRD POINT:
Effect of Order dated 13th January 2024 passed by the learned Arbitral
Tribunal in Application under Section 13(2) of the Arbitration Act.
FOURTH POINT:
The maintainability of the present Petition filed under Sections 14 and
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15 of the Arbitration Act in view of the Order dated 13th January 2024
passed by the learned Arbitral Tribunal.
FIFTH POINT:
The relief to which the Petitioner is entitled in this Petition filed under
Sections 14 and 15 of the Arbitration Act.
40. In view of the above findings it has to be decided what is effect of
Order passed by the learned Arbitral Tribunal in Application under
Section 13(2) of the said Act on the maintainability of the present
Commercial Arbitration Petition, particularly in view of submission of
Mr. Mustafa Doctor, learned Senior Counsel that the Application is
required to be made before the Arbitral Tribunal in cases which are not
falling under the provisions of Section 14(1)(a) of the Act and if such
an application is rejected, the law mandates that the Arbitral Tribunal
must continue the arbitral proceedings and make an Award. It is only
after such award is made that a party can file proceedings for setting
aside the arbitral award in accordance with Section 34 of the Act. Mr.
Mustafa Doctor, learned Senior Counsel has mainly relied on the
decision in the case of HRD Corporation (supra) to substantiate the said
contention.
41. In HRD Corporation (supra), it has been held that the persons
about whom justifiable doubts exist as to their independence or
impartiality, since ineligibility goes to the root of the appointment,
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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". It is further held that 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. In such a
situation, an application may be filed under Section 14(2) to the Court
to decide on the termination of his/her mandate on this ground. It is
further held that if challenge to the appointment of Arbitrator is under
the grounds stated in the Fifth Schedule, 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 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
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application for setting aside the arbitral award in accordance with
Section 34 on the aforesaid grounds.
42. While examining this case on the touchstone of the above
principles it is required to be noted as set out herein above, Mr. R. A.
Shah, learned Arbitrator has failed to make very significant disclosures.
In this background, it is significant to note that it is the submission of
Mr. Rajiv Kumar, learned Senior Counsel that the circumstances which
Mr. R. A. Shah, learned Arbitrator should have disclosed, are covered by
items 1, 8 and 14 of the Seventh Schedule. It is his submission that the
same are also covered by items 1, 8, 14 and 33 of the Fifth Schedule. As
the first 19 items in the Seventh Schedule are identical to the 19 items
in the Fifth Schedule, item Nos.1, 8 and 14 of the Seventh Schedule are
relevant and the same read as under:-
"1. The arbitrator is an employee, consultant, advisor or has
any other past or present business relationship with a party.
8. The arbitrator regularly advises the appointing party or an
affiliate of the appointing party even though neither the
arbitrator nor his or her firm derives a significant financial
income therefrom.
14. The arbitrator regularly advises the appointing party or an
affiliate of the appointing party, and the arbitrator or his or
her firm derives a significant financial income therefrom."
43. As discussed herein above, it is well established that there is long
relationship between Mr. Firodiya, the Managing Director of the
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Respondent No.1 and Mr. R. A. Shah, learned Arbitrator of past about
30 years. In the present case, admittedly, both of them are the Members
of the Respondent No.2 together since 1995. It is also admitted position
that the Respondent No.2 receives payment of fees and deposits and
appoints Arbitrators and constitutes the Arbitral Tribunal. If the
appointment of Arbitrator is challenged, the Governing Body of the
Respondent No.2 takes decision and the decision of the Governing Body
is final. In this background, Rule 24 and 25 of the Indo-German Rules
are very relevant. Rule 24 is regarding fees and deposits. Rule 25 is
regarding the Costs of the Arbitration. The said Rules 24 and 25 are
reproduced herein below :-
"24. Fees and Deposits
24.1. The Tribunal's fees and IGCCAC's fees shall be
ascertained in accordance with the Schedule of Fees at
the time of commencement of the arbitration.
24.2. The Governing Body shall fix the advances on costs of
the arbitration. Unless the Governing Body directs
otherwise, 50% of such advances shall be payable by the
Claimant and the remaining 50% of such advances shall
be payable by the Respondent. The Governing Body may
fix separate advances on costs for claims and
counterclaims.
24.3. Where the amount of the claim or the counterclaim is
not quantifiable at the time when the payment of fees is
due, a provisional estimate of the costs of the arbitration
shall be made by the Governing Body. Such estimate may
be based on the nature of the controversy and the
circumstances of the case. This may be adjusted in light
of such information as may subsequently become
available.
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24.4. The Governing Body may from time to time direct Parties
to make further advances towards costs of the arbitration
incurred or to be incurred on behalf of or for the benefit
of the Parties.
24.5. In the event the Tribunal appoints an expert witness as
mentioned in clause 19.4, the fees and ancillary costs of
such expert witness shall be borne by the Parties in the
manner determined by the Tribunal.
24.6. If a Party fails to pay the fees or make the advances or
deposits directed, the Governing Body may, after
consultation with the Tribunal and the Parties, direct the
Tribunal to suspend work and set a time limit on the
expiry of which the relevant claims or counterclaims
shall be considered as withdrawn without prejudice to
the Party reintroducing the same claims or counterclaims
in another proceeding.
24.7. Parties are jointly and severally liable for the costs of the
arbitration. Any Party is free to pay the whole of the
advances or deposits on costs of the arbitration in respect
of the claim or the counterclaim should the other Party
fail to pay its share. The Tribunal or the Governing Body
or the Governing Body may suspend its work, in whole
or in part, should the advances or deposits directed
under this Rule remain either wholly or in part unpaid.
24.8. If the arbitration is settled or disposed of without a
hearing, the costs of arbitration shall be finally
determined by the Governing Body. The Governing Body
shall have regard to all the circumstances of the case,
including the stage of proceedings at which the
arbitration is settled or disposed of. In the event that the
costs of arbitration determined are less than the deposits
made, there shall be a refund in such proportions as the
Parties may agree, or failing an agreement, in the same
proportions as the deposits were made.
24.9. All advances shall be made to and held by IGCCAC. No
interest shall accrue on any deposits made to IGCCAC.
25. Costs of the Arbitration
25.1. The Tribunal shall specify in the Award, the total amount
of the costs of the arbitration. Unless the Parties have
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agreed otherwise, the Tribunal has the authority to order
in the Award that the unsuccessful Party shall pay the
costs of the successful Party. The Tribunal may make a
different order for reasons recorded in writing in the
Award.
25.2. The term "costs of arbitration" shall include:
25.2.1. The fees and expenses of the Tribunal and witnesses;
25.2.2. IGCCAC administrative fees and expenses; and
25.2.3. Costs of expert advice and other assistance required by
the Tribunal from time to time.
25.3. The Tribunal must follow the principles of equity and
natural justice in determining the costs to be imposed on
the parties."
(Emphasis added)
44. Thus, cumulative effect of these provisions clearly shows that the
association of Mr. R. A. Shah, learned Arbitrator and Mr. Firodia,
Managing Director of Respondent No.1 is covered by the term financial,
business, professional or other kind of relationship as provided in
Section 12(1)(a) and is also covered by Clause No.1, Clause No.8 and
Clause No.14 of Seventh Schedule. As noted herein above, there is non-
disclosure of very significant aspects and as held in HRD Corporation
(supra) that a person becomes ineligible and de jure to perform his
functions as Arbitrator only in cases covered under Section 12(5), then
also Mr. R. A. Shah, learned Arbitrator becomes ineligible and de jure to
perform his functions and the case is covered by Section 14(1)(a) of the
said Act and therefore the present Petition filed under Sections 14 and
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15 of the said Act is maintainable and deserves to be allowed.
45. Assuming that the present case is not covered under clause Nos.
1, 8 and 14 of the Seventh Schedule, as submitted by Mr. Mustafa
Doctor, learned Senior Counsel, the same will be covered by the legal
position as held in Larsen & Toubro Ltd. (supra), wherein it is held that
the disablement of an arbitrator under clause (a) of subsection (1) of
Section 14 takes within its fold not only the ineligibility criteria
prescribed under the Seventh Schedule but also those aspects which
although do not fall within the ambit of the entries set out in Seventh
Schedule but lend support to the plea, that the appointee-arbitrator
would be anything but impartial and/or independent. Thus, by taking
into consideration the facts and circumstances, it has to be held that Mr.
R. A. Shah, learned Arbitrator becomes ineligible and de jure to perform
his functions and the case is covered by Section 14(1)(a) of the said Act
and therefore the present Petition filed under Sections 14 and 15 of the
said Act is maintainable and deserves to be allowed.
46. Mr. Mustafa Doctor, learned Senior Counsel as noted herein
above by relying on the decision HRD Corporation (supra) submitted
that the present case will be at the most covered by the Fifth Schedule,
without prejudice to his contention that the disclosure as pointed out by
the Petitioner is not at all relevant. Learned Senior Counsel therefore
submitted it is the Arbitral Tribunal which will decide challenge to the
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appointment of the Arbitrator under Section 13 and if 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 and 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. Learned
Senior Counsel submits that in fact application under Section 13 of the
said Act has been filed and the same is rejected.
47. This Court has already held that as Mr. R. A. Shah, learned
Arbitrator has failed to disclose with respect to the important aspects
and in fact he becomes de jure unable to perform his functions. It has
been held that the relationship between Mr. R. A. Shah and Dr. Firodia,
Managing Director of the Respondent No.1 will fall under Items Nos.1,
8 and 14 of the Seventh Schedule and therefore he becomes de jure
unable to perform his functions.
48. In the above background of the matter, it is relevant to note the
observations in the impugned Order dated 13th January 2024 of the
Arbitral Tribunal. The relevant portion is in Paragraph Nos.13, 14, 15
and 16, which reads as under :-
"13. The Tribunal finds that this explanation is not
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acceptable. Mr. R.A. Shah, learned Arbitrator filed his
declaration under Section 12 on 19.05.2022. The Respondent
should have been vigilant in making inquiries about any
doubts regarding the impartiality of Mr. R.A. Shah, learned
Arbitrator immediately after his declaration from which
information relating to his continuance as Member of the
Committee of IGCC was available to the Respondent. The
Respondent has not shown due diligence in making such
inquiry, especially in view of the averments made by the
Respondent in the application that it was persuaded by Dr.
Abhaykumar N. Firodia to accept that the arbitration would
be conducted in accordance with the Rules of the IGCC. The
Respondent is relying upon documents filed along with the
application to show that Dr. Abhaykumar N. Firodia is a
Member of the Committee of IGCC and Ms. Sonia Prashar is
the Deputy Director General of IGCC and Additional Director
of the Claimant-Company which are in public domain.
However, what is material is that the Application gives no
explanation as to why suddenly the enquiries into the office
bearer and member of the Committee were carried out at the
time of drafting of the Statement of Defence and why similar
enquiries were not made earlier when the disclosure was
made by Mr. Shah. From the above, it is clear that Respondent
had constructive knowledge of the circumstances giving rise
to justifiable doubts regarding the impartiality of Mr. R.A.
Shah, learned Arbitrator.
14. According to Gary B. Born in International
Commercial Arbitration, Third Edition, objection to an
Arbitrator's independence and impartiality should be raised
promptly after the arbitrator's nomination, alternatively, after
a party learns of the basis for the challenge. In some cases,
determining when a party actually knew of the circumstances
giving rise to the challenge may be difficult. It is therefore
necessary that if the Application is at a later stage (not
immediately after a disclosure), there is a reasonable
explanation as to the circumstances in which the knowledge is
stated to arise and why it was not known earlier. That is
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absent in the present case.
15. Under the circumstances, the explanation given by the
Respondent about its awareness of the circumstances giving
rise to justifiable doubts regarding the independence of Mr.
R.A. Shah, learned Arbitrator for the first time only a week
prior to the application being filed on 29.07.2023 is not
convincing.
16. For the foregoing reasons, the application is barred by
limitation. It is not necessary to express any opinion on the
other points argued by both sides."
(Emphasis added)
49. It is made very clear that this Arbitration Petition is filed under
Sections 14 and 15 of the said Act and the Order dated 13th January
2024 passed by the Arbitral Tribunal is not under challenge. However,
Mr. Mustafa Doctor, learned Senior Counsel raised the contentions that
as the Arbitral Tribunal has decided the objection only recourse for the
Petitioner is to take objection in Section 34 proceedings and therefore to
consider these contentions raised by learned Senior Counsel, the
observations are made with respect to the Order passed by the learned
Arbitral Tribunal. What the learned Arbitral Tribunal has held that the
Respondent should have been vigilant in making inquiries about any
doubts regarding the impartiality of Mr. R. A. Shah, learned Arbitrator
immediately after his declaration from which information relating to his
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continuance as Member of the Committee of IGCC was available
to the Respondent and that the Respondent has not shown due
diligence in making such inquiry. However, the said approach and
the reasoning of the learned Arbitral Tribunal is contrary to the
Division Bench Judgment of the Delhi High Court in the case of
Ram Kumar (supra). It has been held in the said decision that the
assumption that the burden to ascertain the circumstances that
may give rise to justifiable doubts as to the independence and
impartiality of the arbitrators is on the parties, is erroneous. The
disclosure is necessarily required to be made by the person
approached in connection with his appointment as an arbitrator
and it is mandatory for the person who is approached in
connection with his possible appointment as an arbitrator, to
make a disclosure of all circumstances that may give rise to
justifiable doubts as to his independence and impartiality and it
would be erroneous to assume that the requirement of making a
disclosure is not mandatory. In the said decision, it has been held
that the requirement of making a disclosure is a necessary
safeguard for ensuring the integrity and efficacy of an arbitration
as an alternate dispute resolution mechanism and is not optional.
50. Thus, it is the complete responsibility of the person who has been
approached for being appointed as Arbitrator to make disclosure and
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the disclosure should be a complete disclosure. The burden is not on the
parties to the arbitration proceedings to find out on the basis of partial
disclosure, if any ground exist which gives rise to justifiable doubt as to
the independence and impartiality of the person approached to be
appointed as Arbitrator.
51. In any case, the learned Arbitral Tribunal has passed the Order on
the ground that the Application is barred by limitation. Once it is held
that the Application is barred by limitation, the Arbitral Tribunal has no
jurisdiction to deal with the said Application. It is clear that the learned
Arbitral Tribunal has not decided the Application on merits and
therefore also the same is not an impediment to this Court to consider
and decide the present Application filed under Sections 14 and 15 of
the said Act.
52. However, it is expressly clarified that observation as regards the
order dated 13th January 2024 are made as Mr. Mustafa Doctor, learned
Senior Counsel has made submissions concerning the same. It is also
clarified that this Court has already held that the appointment of Mr. R.
A. Shah is covered by the Seventh Schedule and in any case he has
become de jure unable to perform his functions. Thus, for the above
reasons, the present Petition filed under Sections 14 and 15 of the said
Act is maintainable.
53. Mr. Rajiv Kumar, learned Senior Counsel has also raised certain
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other contentions regarding Ms. Sonia Prashar acting at one point of
time as Deputy Director General of Respondent No.2 and Member of the
Governing Body of the Respondent No.2 and she has been appointed as
an Additional Director of Respondent No.1 on 28th September 2022 i.e.
4 months after the constitution of the Arbitral Tribunal. It is his
submission that in view of the same and as Mr. R. A. Shah, learned
Arbitrator is closely associated with Respondent No.2, Respondent No.2
be removed by substituting another reputed arbitral institution in place
of Respondent No.2 to administer and manage arbitral proceedings for
adjudication in the dispute and differences between the Petitioner and
the Respondent No.1. However, I have already held that Mr. R. A. Shah
has become de jure unable to perform his functions and therefore
ineligible to act as the Arbitrator. By exercising power under Section 14
of the said Act as I am terminating the mandate of Mr. R. A. Shah,
learned Arbitrator to act as Arbitrator, it is not necessary to substitute in
place of the Respondent No.2 another arbitration institution. Therefore,
the said prayer is rejected.
54. It is required to be noted that Mr. R. A. Shah, learned Arbitrator is
not made party to the present Petition. However, Mr. Rajiv Kumar,
learned Senior Counsel submitted that as Mr. R. A. Shah is working as
Solicitor since 1955 and Managing Partner of a reputed firm of
Advocates and Solicitors, to avoid embarrassment, he has not been
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impleaded as party. It is also required to be noted that Mr. Mustafa
Doctor, learned Senior Counsel has not raised any objection concerning
the same.
55. For the above discussion, the Commercial Arbitration Petition is
allowed in terms of prayer clause (a).
56. As far as prayer clause (b) as Rule 8.5.2 of the IGCC Arbitration
Rules, which were applicable to the appointment of Mr. R. A. Shah,
would apply and Respondent No.1 would have a right to appoint its
nominee Arbitrator. The Respondent No.1 to take appropriate steps to
appoint its nominee Arbitrator.
57. Accordingly, the Commercial Arbitration Petition is disposed of in
above terms with no order as to costs.
58. This order was dictated in Open Court on earlier dates and
completed today.
59. As I am conducting the Court at least for 2-2 1/2 hours almost
every day after regular Court hours, leaving the Chamber after
correcting/signing daily orders at least up to 10:30 p.m.-11:30 p.m. on
almost all the Court working days and reading the case papers at my
residence up to 02:00 a.m., reading the case papers in the morning at
least for one hour and also attending the Chamber on almost all
Saturdays/Sundays/Holidays for completing pending work, uploading
of this order is delayed.
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60. This Court places on record its appreciation for the assistance
rendered by Mr. Rajiv Kumar, learned Senior Counsel and Mr. Mustafa
Doctor, learned Senior Counsel respectively appearing for the Petitioner
and Respondent No.1.
[MADHAV J. JAMDAR, J.]
Digitally
signed by
SONALI
SONALI MILIND
MILIND PATIL
PATIL Date:
2025.05.10
18:44:45
+0530
