Karnataka High Court

M/S Jsw Steel Limited vs South Western Railway on 23 December, 2021

Bench: N.S.Sanjay Gowda

           IN THE HIGH COURT OF KARNATAKA
                   DHARWAD BENCH
     DATED THIS THE 23RD DAY OF DECCEMBER 2021
                             BEFORE
     THE HON'BLE MR.JUSTICE N.S.SANJAY GOWDA
                    CMP No.100015/2021
Between:
M/s. JSW Steel Limited,
Having its registered Office at
Vidyanagar Works, P.O. Vidyanagar,
Ballari Distrcit-583 275,
Rep. by its Vice President, Mr. Manjunath Prabhu.
                                                         ... Petitioner
(By Shri Prashant F.Goudar, Advocate)

And:
1.     South Western Railways,
       3rd Floor, East Wing, South Western Railway,
       Rail Soudha, Hubballi-580 020,
       Rep. by its General Manager.
2.     Shri Ashok Kumar,
       Retired CME/Diesel Locomotive Works,
       Varasnasi, 80-C, Tagore Town,
       Allhabad-211002.
                                                      ... Respondents
(By Shri Ajay U.Patil, Advocate for R1)

        This Civil Miscellaneous Petition is filed under Section 11(6)
read with Sections 12 and 14 of the Arbitration and Conciliation Act,
1996 read with Clause 2 of the Appointment of Arbitrators by the
Chief Justice of Karnataka, High Court Scheme, 1996, praying that
allow the petition by annulling the procedure adopted by the
respondent No.1 for the appointment of the Arbitrators which is
ineligible by operation of law stipulated under Section 12(5) read wit
the seventh schedule of the Arbitration and Conciliation Act, 1996
and etc.,

      This CMP being heard and reserved for orders, coming on for
pronouncement of order, this day, the Court made the following:
                                :2:



                            ORDER

1. The petitioner has filed this petition under Section

11(6) read with Sections 12 and 14 of the Arbitration and

Conciliation Act, (for short "the Act").

2. The petitioner has sought for annulling the

procedure adopted by the first respondent (Railways) for

appointment of Shri Ashok Kumar Singh, a retired officer of

the Railways, as an Arbitrator, on the ground that he was

ineligible to be appointed by virtue of Section 12(5) read with

Schedule-VII of the Act.

3. A further prayer is sought to appoint a sole

Arbitrator to resolve the existing disputes and consequentially

hold that the appointment made by the first respondent of Shri

Ashok Kumar Singh was bad in law.

4. The facts which would be necessary for resolving

the dispute raised in this petition are that on 21.08.2017, the

petitioner entered into a contract with the Railways. The

Contract stipulated that the petitioner provide guaranteed

freight revenue to the Railways and the Railways, in turn,

agreed to evacuate the traffic so offered by providing Wagons

and connected services.

5. The stated objective of the agreement was that

the Railways would provide freight incentives in the form of

rebate on the total gross freight revenue as a consideration for

the commitment of the petitioner to provide minimum

guaranteed gross freight revenue during the contractual

period.

6. The said agreement provided for an Arbitration

clause, reads as under:

"Section 13.5 Arbitration:

In the event of any question or difference arising out of or under this Contract in connection therewith (except as to matters, the decision to which is specifically provided under this Contract) the same shall be resolved by amicable settlement failing which the matter will be referred to the Sole Arbitrator appointed by the Competent Authority i.e., General Manager of concerned Zonal Railways. The Arbitration shall be conducted in accordance with the provisions of Arbitration and Conciliation Act, 1996 as amended in 2015 and the Rules made there under. The decision of the Arbitrator shall be final and binding upon the parties."

7. It appears that the disputes arose between the

petitioner and the first respondent, and this led to the

petitioner invoking arbitration by its letter dated 05.12.2019

and requested the General Manger of the Railways to refer the

issue to the sole Arbitrator as per the provisions of the Act as

amended in 2015.

8. The Railways responded by their letter dated

07.01.2020 stating that the request of the petitioner to

appoint a neutral Arbitrator like some retired High Court Judge

was not acceptable as it had been opined that the requirement

of the independent Arbitrator as per the provisions of the

amended Act, could be met by appointing a retired officer as

his sole Arbitrator.

9. The Railways also called upon the petitioner to

enter into an agreement, waiving the applicability of Section

12(5) of the Act and in case the petitioner was not prepared to

waive the applicability of Section 12(5) of the Act, the matter

would be proceeded for appointment of a retired officer, as per

the Railway Board Letter dated 18.10.2017.

10. This request of the Railways was not acceded to by

the petitioner and the petitioner requested the General Manger

to appoint a retired Judge as a sole Arbitrator.

11. Subsequently, by another letter dated 30.08.2020,

the petitioner stated that it was not agreeable for waiving the

applicability of Section 12 of the Act and informed the

Railways that it was nominating a Former Judge of this Court

as an Arbitrator.

12. The Railways addressed a communication in the

month of November-2020 informing the petitioner that the

General Manger had nominated four retired officers for

constitution of an Arbitral Tribunal consisting of a sole

Arbitrator and the petitioner was requested to suggest two

names out of the panel of four names furnished to him within

thirty days.

13. Thereafter, the General Manager proceeded to

appoint Shri Ashok Kumar Singh, a retired officer of the

Railways as a sole Arbitrator to adjudicate upon the dispute

arising out of the agreement and called upon him to enter into

a reference and adjudicate the following claim:

 Sl.   Claim                                     Claimed amount
                Claimant claims description
 No.    No.                                              Rs.
 1.      1.  Whether the Contractor should       27,30,00,000.00
             refund the excess payment of         (Rupees Twenty
             LTTC    rebate     amount      as     Seven Crores
             demanded by PCCM/SWR Office.        Thirty lakhs only)

14. The petitioner stated in the reply that they did not

consent to the unilateral action on the part of the Railways in

appointing Shri Ashok Kumar Singh and reiterated its demand

to nominate the retired Judge of this Court as a sole

Arbitrator.

15. The sole Arbitrator, thereafter, addressed an Email

to the petitioner and to the Railways calling upon them to

submit their claims/counter claims. The Railways by their

communication dated 10.05.2021, informed the petitioner that

a sole Arbitrator had already been appointed and the terms of

the reference had also been issued and since the Arbitral

Tribunal was competent to rule on its own jurisdiction, it was

open for the petitioner to raise his grievances before the

Arbitrator. It was stated that a retired officer of the Railways

did not have any relationship as contemplated under

Schedule-VII and therefore request for appointment of a

neutral Arbitrator was untenable.

16. The petitioner, as a consequence, has filed this

petition seeking for annulling the appointment of the arbitrator

made by the General Manager and for appointment of an

independent Arbitrator.

17. Shri Prashant F. Goudar, learned counsel

appearing for the petitioner essentially contended that it was

now settled law that a person, who was ineligible to be an

Arbitrator could not appoint an Arbitrator. He submitted that

since the General Manager, being an employee of the Railways

and thereby being ineligible to be an Arbitrator (by virtue of

ground No.1 of the Schedule-VII read with Section 12(5) of

the Act) could not possess the power to appoint another

person as an Arbitrator.

18. He elaborated on this submission and contended

that even if there was an agreement to the contrary i.e., an

agreement which provided for an employee to appoint an

Arbitrator, nevertheless, by virtue of Section 12(5) of the Act,

the employee would be ineligible for being an Arbitrator or for

appointing an Arbitrator. He placed strong emphasis on the

judgments rendered by three Judges of the Hon'ble Supreme

Court in the case of

(a) TRF Limited Vs. Energo Engineering Projects Limited reported in (2017)8 SCC 377;

(b) Bharat Broadband Network Limited V. United Telecoms Limited reported in (2019)5 SCC 755;

HSCC (India) Ltd., reported in 2019 SCC Online SC 1517;

(d) Haryana Space Application Center (HARSAC) and another V. Pan India Consultants Private Limited, reported in (2021)3 SCC 103,

(e) A judgment passed in a proceeding under Section 11 of the Act in CMP 7/2020 by a Coordinate Bench.

19. He submitted that since the appointment of the

Arbitrator was nonest, the same could be ignored or if

necessary be annulled by this Court in exercise its powers

under Section 11(6) of the Act and appoint an independent

Arbitrator.

20. Shri M.B. Nargund, learned Additional Solicitor

General appearing for the learned counsel Shri Ajay U.Patil

contended that the ineligibility contemplated under Section

12(5) of the Act, was ineligibility of an Arbitrator and not the

ineligibility of an employee to appoint an Arbitrator. He

submitted that it was permissible for the parties to enter into a

contract, which provided for an employee to appoint an

Arbitrator. He submitted that the contract in question had in

fact been entered into after the Act was amended in 2015 and

the parties were therefore consciously aware that an employee

was being given the power to appoint an Arbitrator.

21. He submitted that the Act did not create an

absolute bar for the appointment of an employee, since by

virtue of the proviso to Section 12(5) of the Act, after the

disputes had arisen by way of an express agreement in

writing, the parties still could accede to the appointment of an

arbitrator who was otherwise ineligible for being appointed as

per Schedule VII.

22. He submitted that the General Manager, in the

instant case, being conscious of the demand raised by the

petitioner for appointing an independent Arbitrator chose to

give the petitioner an option of choosing any two former

employees of the Railways to be the Arbitrator and since the

General Manager had taken care to avoid the ineligibility as

contemplated under 12(5) of the Act and had furnished a list

of retired Railway officers, the petitioner could have no

grievance as regards the eligibility of the Arbitrator.

23. He submitted that the Hon'ble Supreme Court had

in more than one case had held that a retired employee could

be appointed as an Arbitrator and there was thus no

ineligibility as such for such an appointment.

24. The learned Senior Counsel contended that it was

settled law that the contractual term agreed upon by the

parties was to be respected and an appointment in terms of

the agreed contractual term would have to be followed. He

submitted that since the parties had even after the

amendment to the Act in 2015 had consciously chosen to

enable one of the employees of contracting party to appoint an

Arbitrator, the said contractual term would have to be

accepted and the other contracting party should not be

permitted to resile from the contractual clause.

25. The learned Senior Counsel, in support of his

contention, relied upon the judgments rendered by the Hon'ble

Apex Court in the cases of

(a) Central Organisation for Railways Electrification V. ECI-SPIC-SMO-MCML (JV) a Joint Venture Company reported in (2020)14 SCC 172;

(b) Union of India V. Pradeep Vinod Construction Company reported in (2020)2 SCC 464;

(d) Government of Haryana PWD Haryana (B and R) Branch V. G.F. Toll Road Private Limited and others reported in (2019)3 SCC 505;

(e) S.P. Singla Constructions Private Limited V.

State of Himachal Pradesh and another, reported in (2019)2 SCC 488

26. After having heard the learned counsel, in my

view, the following points would arise for consideration, in this

petition:

(a) Whether the General Manager, despite himself being ineligible to be appointed as an arbitrator, could still have the power to appoint an Arbitrator?

(b) Whether under an agreement entered into after the 2015 amendment act, which provided for an employee being empowered to appoint an arbitrator, an arbitrator appointed by the employee be non-est and invalid?

(c) Whether this Court acting in exercise of the power under S. 11 (6) of the Act hold that the appointment made by the General Manger as nonest and appoint another Arbitrator or Whether the petitioner would be required to take recourse to the remedy provided under Section 14(2) of the Act for termination of the mandate of the arbitrator appointed?

27. It is not in dispute that in the present case, the

agreement of contract itself was entered into on 21.08.2017

i.e., after the Arbitration and Conciliation Act was amended in

the year 2015.

28. To answer these questions, a brief overview of the

Act would have to be made.

29. The entire set of arguments advanced by both the

learned counsel revolves around various case laws rather than

on any statutory provision. The judgments relied upon by the

learned counsel for the petitioners can be classified in the

following manner:

Citation/parties For the proposition

(2017)8 SCC 377 A Managing Director being ineligible to be an arbitrator by virtue of S. 12 (5) of the Act TRF Limited V. Energo cannot in turn nominate an Engineering Projects arbitrator Limited (Para 50 & 54).

  (2019)5 SCC 755               The law stated in TRF Limited
                                (supra) was followed and it held
  Bharat Broadband Network      that the Managing Director being
  Limited V. United Telecoms    ineligible to be an arbitrator
  Limited                       cannot     by   himself  appoint
                                another arbitrator.

                                            (Para 14)

  2019 SCC Online SC 1517       There would be a two categories
                                of case, one in which the MD was
  Perkins Eastman Architects    himself the arbitrator and was
  DPC and Another V. HSCC       required     to    conduct     the
  (India) Ltd.,                 arbitration and there was a
                                second category of cases were
                                the    Managing    director    was
                                himself not the arbitrator but was
                                given the power to appoint
                                another arbitrator

                                In both categories of cases, the




                                  ineligibility under Section 12(5)
                                  of the Act would stand attracted
                                  and the MD could not appoint an
                                  arbitrator.

                                                (Para 20 & 21)

  (2021)3 SCC 103                 It is held that Section 12(5)
                                  renders an employee ineligible to
  Haryana Space Application       be appointed as an arbitrator.
  Center (HARSAC) and
  another V. Pan India                            (Para 18)
  Consultants Private Limited,

30. As could be seen from the above case law, the

thrust of the argument is on the fact that the General Manager

being an employee of the Railways was ineligible for being

appointed as an arbitrator and as a necessary consequence he

would not possess the power to appoint an arbitrator, even

though the arbitration clause did provide for such an

appointment.

31. It cannot be in dispute that the Hon'ble Supreme

Court in the above mentioned cases has held that when there

is a named arbitrator and he happens to be an employee,

firstly, he cannot become an arbitrator and secondly, by virtue

of this basic ineligibility, he cannot also appoint another

arbitrator.

32. However, Shri M.B. Naragund, learned Senior

counsel relied upon the following decisions:

Citation/parties For the proposition 2014 (11) SCC 560 Once an arbitrator is appointed, the said appointment cannot not Antrix Corporation Limited V. be the subject matter of an Devas Multimedia Private application under Section 11(6) of Limited the Act (paragraph 31)

(2019)2 SCC 488 An employee can be appointed as an arbitrator and the challenge to S.P. Singla Constructions, the said appointment should be Private Limited V. State of made only before the Arbitral Himachal Pradesh and Tribunal itself (para 11 and 14) another

(2019)3 SCC 505 A former employee is not debarred from being appointed as Government of Haryana PWD an arbitrator, despite section Haryana (B and R) Branch V. 12(5) of the Arbitration and G.F. Toll Road Private Limited Conciliation Act. (Para 20 & 21) and others

(2019)15 SCC 682 A procedure agreed upon by the parties for appointing an Union of India V. PARMAR arbitrator should normally be Construction Company followed and only in case where the impartiality is in doubt or the Arbitral Tribunal was not functional and had failed either to conclude or pass an award, resort may be taken to an alternative procedure. (Para 42 & 44)

(2020)14 SCC 712 The agreed procedure for appointment of an arbitrator Central Organization for should be resorted to and an Railway Electrification V. ECI- independent arbitrator should not SPIC-MCML (JV) a Joint be appointed (para 22), Venture Company A retired officer was not ineligible for being appointed as an arbitrator (para 27).

If the power of appointment by the General Manager is counter balanced with a power given to the contractor then it is permissible for the General Manager being the appointing authority (para 35 & 37)

33. In the case of Central Organization for Railway

Electrification (Supra), the decision rendered in the cases of

TRF Limited (Supra) and Perkins Eastman Architects

DPC and Another (supra) case was distinguished by the

Apex Court by holding that the power to appoint an arbitrator

by the General Manager was counter balanced by the power

given to the contractor to have a say in the appointment of the

arbitrator and choose his nominee.

34. It has been the decision rendered in the cases of

TRF Limited (Supra) and Perkins Eastman Architects

DPC and Another (supra) were in situations where the other

contracting party had no say in the appointment of an

arbitrator and the appointment was basically an unilateral act

by one party. It was held that in the case of Railways, the

power to appoint an arbitrator was counter balanced by

granting an option to the Contractor to pick his nominee and

hence the said decisions could not lead to the conclusion that

an employee did not have the power to appoint an arbitrator.

35. Thus, from the line of the citations relied upon by

the learned Senior counsel, it is sought to be contended that

though the General Manager was ineligible to be the arbitrator,

in cases where he had been given the power to appoint the

arbitrator, if he had chosen to follow a procedure where the

concept of "counter balancing of the power of the contracting

parties" laid down in the decision of the Hon'ble Supreme

Court was followed, the appointment was not vitiated.

36. He contended that in the present case, despite the

fact that the General Manager was not obliged to give an

option to the petitioner to choose his nominee, the General

Manager had adopted a procedure by which it had been

ensured that the Contractor was given the counterbalancing

power in the matter of appointment of an arbitrator and since

care has been taken to ensure that ineligibility stipulated

under Section 12(5) was not attracted by appointing an

arbitrator who was a retired officer, the appointment was valid

and permissible in law.

37. Though there is considerable force in the

arguments advanced both by the petitioners counsel and by

the arguments advanced by the learned Senior Counsel, in my

view, by virtue of the decision rendered by the Hon'ble

Supreme Court by the recent three Judges decision of the

Hon'ble Supreme Court in the case of Vidya Drolia Vs. Durga

Trading Corporation reported in (2021)2 SCC 1, the

complexion of the entire case has stood changed.

38. In the above concurring judgment of three Judges,

two opinions have been rendered, which both lay down the

same proposition and which supplement each other.

39. In the leading opinion of the Hon'ble Judge at para

139, it has been held as follows:

"139. We would not like to be too prescriptive, albeit observe that the court may for legitimate reasons, to prevent wastage of public and private resources, can exercise judicial discretion to conduct an intense yet summary prima facie review while remaining conscious that it is to assist the arbitration procedure and not usurp jurisdiction of the Arbitral Tribunal. Undertaking a detailed full review or a long- drawn review at the referral stage would obstruct and cause delay undermining the integrity and efficacy of arbitration as a dispute resolution mechanism. Conversely, if the court becomes too reluctant to intervene, it may undermine effectiveness of both the arbitration and the court. There are certain cases where the prima facie examination may require a deeper consideration. The court's challenge is to find

the right amount of and the context when it would examine the prima facie case or exercise restraint. The legal order needs a right balance between avoiding arbitration obstructing tactics at referral stage and protecting parties from being forced to arbitrate when the matter is clearly non-arbitrable."

40. To ensure that the jurisdiction of the Arbitral

Tribunal is not usurped and the matters which are to be

decided by the Tribunal are not decided in a proceedings under

Section 11 of the Act.

41. It may be pertinent to state here that the

Parliament had inserted sub-Section (6-A) to Section 11 of the

Act, which had fundamentally restricted the scope of

examination of a request made for appointment of an

arbitrator in a proceeding under S. 11 (6) to considering

whether there existed a valid arbitration agreement.

42. Though this sub-section (6-A) was omitted by the

Act 33 of 2019, however, the Hon'ble Supreme Court in the

aforementioned decision had held as follows (para 144 and

145):

144. As observed earlier, Patel Engg. Ltd. explains and holds that Sections 8 and 11 are complementary in nature as both relate to reference to arbitration. Section 8 applies when judicial proceeding is pending and an application is filed for stay of judicial proceeding and for reference to arbitration. Amendments to

Section 8 vide Act 3 of 2016 have not been omitted. Section 11 covers the situation where the parties approach a court for appointment of an arbitrator. Mayavati Trading (P) Ltd. , in our humble opinion, rightly holds that Patel Engg. Ltd. has been legislatively overruled and hence would not apply even post omission of sub-section (6-A) to Section 11 of the Arbitration Act. Mayavati Trading (P) Ltd. has elaborated upon the object and purposes and history of the amendment to Section 11, with reference to sub- section (6-A) to elucidate that the section, as originally enacted, was facsimile with Article 11 of the UNCITRAL Model of law of arbitration on which the Arbitration Act was drafted and enacted. Referring to the legislative scheme of Section 11, different interpretations, and the Law Commission's Reports, it has been held that the omitted sub-section (6-A) of Section 11 of the Arbitration Act would continue to apply and guide the courts on its scope of jurisdiction at stage one, that is, the pre-arbitration stage.

145. Omission of sub-section (6-A) by Act 33 of 2019 was with the specific object and purpose and is relatable to by substitution of sub-sections (12), (13) and (14) of Section 11 of the Arbitration Act by Act 33 of 2019, which, vide sub-section (3-A) stipulates that the High Court and this Court shall have the power to designate the arbitral institutions which have been so graded by the Council under Section 43-I, provided where a graded arbitral institution is not available, the High Court concerned shall maintain a panel of arbitrators for discharging the function and thereupon the High Court shall perform the duty of an arbitral institution for reference to the Arbitral Tribunal. Therefore, it would be wrong to accept that post omission of sub-section (6-A) of Section 11 the ratio in Patel Engg. Ltd. would become applicable."

43. It therefore follows from the said decision that

despite omission of sub-section (6-A) of Section 11 of the Act,

the said provision would continue to apply and guide the Court

on the scope of jurisdiction at pre-arbitration stage.

44. Ultimately, in the leading opinion regarding on the

question "Who decides arbitrarbility" it has been stated as

follows as regards the scope of a judicial review (para 154.2):

"154.2. Scope of judicial review and jurisdiction of the court under Sections 8 and 11 of the Arbitration Act is identical but extremely limited and restricted."

45. In the concurring opinion, after a study of all the

precedents, propositions of law concerning Section 11 of the

Act have been stated. The proposition reads as follows: (Para

206.1 206.2 and 206.3):

"206.1. Reference power under Section 11 of the Act is judicial and not administrative.

206.2.There was a wide discretion for judicial interference at the stage of reference under Section 11 of the Act, prior to the Arbitration Amendment Act of 2015.

206.3.The amendment in 2015 was brought into force to limit the power of judicial interference under Section 11 of the Act."

46. It thus emerges that the sight discretion available

earlier for judicial interference under Section 11 of the Act

prior to the amendment to the act in 2015 has been limited by

amendment. In other words, the power of interference under

Section 11 has stood curtailed.

47. Ultimately in the concurring opinion at para 225,

after a study of the precedents, the conclusions with respect to

adjudication of subject-matter arbitrability under Section 8 &

11 are enumerated. Para 225.2, which would be relevant for

this case reads as follows:

"225.2. Post the 2015 Amendment, judicial interference at the reference stage has been substantially curtailed."

48. Further, at paragraph 227 it is stated as under:

"227. However, post the 2015 amendment, the structure of the Act was changed to bring it in tune with the pro-arbitration approach. Under the amended provision, the court can only give prima facie opinion on the existence of a valid arbitration agreement. In line with the amended language and the statutory scheme, the examination of the subject-matter arbitrability may not be appropriate at the sate of reference under Section 8 of the Arbitration Act. It is more appropriate to be taken up by the court at the stage of enforcement under Section 34 of the Act. Having said so, in clear cases where the subject-matter arbitrability is clearly barred, the court can cut the deadwood to preserve the efficacy of the arbitral process."

49. It is therefore clear from the above, the Court

while acting under Section 11 of the Act is required to appoint

an arbitrator and while doing so, the scope of interference is

rather limited and that scope of the Court is restricted to

consider as to whether the arbitration agreement is in writing,

whether the core contractual ingredients in relation to the

arbitration agreement were fulfilled and on rare occasions,

whether subject matter of the dispute is arbitrable.

50. While exercising the power to appoint an arbitrator

under Section 11 of the Act, the essential requirements would

be to ascertain whether there existed an arbitration agreement

and thereafter it would have to be seen whether the

contractual terms for appointment as provided under the

arbitration agreement have been fulfilled.

51. In fact, the opportunity to appoint an arbitrator

under Section 11 of the Act would present itself only if an

appointment is not made as agreed under the arbitration

agreement. In the normal course, if an arbitrator is appointed

by the party or parties, the question of invoking Section 11 of

the Act would not even arise.

52. Since the jurisdiction to invoke section 11 of the

Act becomes available only if there is a default on the part of

the contracting party, a party cannot seek for its invocation as

a matter of right and in that process call upon the designate to

decide on the validity of an arbitrator already appointed.

53. No doubt, in a case where arbitrator is yet to be

appointed and the question of complying with the

requirements in appointing arbitrator is being examined and is

being undertaken, then the designate can exercise its powers

and ensure that an arbitrator is appointed in accordance with

the contractual terms and also in adherence to the provisions

of the act.

54. In the ultimate analysis, in the light of the decision

rendered in the case of Vidya Drolia (supra), the scope of a

proceeding under Section 11 of the Act is very limited and is

confined only to the examination of few fundamental issues.

55. Thus, in the light of the law laid down in the case

of Vidya Drolia (supra), it will have to be held that the

power to sit in a judgment over the appointment of an

arbitrator would not be available under Section 11(6) of the

Act and if any attempt in that regard is undertaken, the same

would not be in consonance with the law laid down by the

Apex Court.

56. In the instant case, the General Manager has not

unilaterally appointed an arbitrator. He has chosen to give an

option to the petitioners to choose their nominee from among

a panel of two arbitrators and he has taken care to ensure that

the arbitrators proposed do not fall foul of the ineligibility laid

down in Section 12(5) of the Act.

57. The General Manager has ensured that the power

in appointing an arbitrator has been counter balanced by

granting power to the petitioner to choose his nominee.

58. In the light of the decision laid down by the Apex

Court in the case of Central Organization for Railway

Electrification (Supra), where the judgments in the case of

TRF Limited (Supra) and Perkins Eastman Architects

DPC and Another (supra) have been considered and

distinguished and it has been held that when the power to

appoint an arbitrator by one party is counter balanced with an

option given to the other contracting party in the matter of

appointment, it cannot be said that the appointment made by

the General Manager in the instant case is illegal.

59. However, the fact remains that the General

Manager who was ineligible to be appointed as an arbitrator

has appointed another arbitrator. According to the learned

counsel for the petitioner, by virtue of Section 12(5) of the

Act, the arbitrator appointed by the General Manager has de

jure become unable to function as an arbitrator.

60. In such a situation, as per the decision rendered in

HRD Corporation (Marcus Oil and Chemical Division) V.

GAIL (India) Limited (Formerly Gas Authority of India

Limited) reported in (2018)12 SCC 471, Section 14 (2) of

the Act would come into operation. In the said decision it has

been held as follows:

"12. xxxxx 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. xxxxx."

61. Section 14 of the Act states that the mandate of

an arbitrator stands terminated if he becomes de jure unable

to perform his function and he would have to be substituted by

another arbitrator. Section 14(2) of the Act also states that if a

controversy remains concerning the aspect as to whether the

arbitrator had become de jure unable to perform, a party

would have to apply to the Court to decide the termination of

the mandate.

62. Thus, if the petitioner is of the view that the

arbitrator appointed by the General Manager has de jure

become unable to perform his functions by virtue of Section

12(5) of the Act, it is open for him to apply to the Court as