TMI Blog2017 (11) TMI 1814X X X X Extracts X X X X X X X X Extracts X X X X ..... ointment was accepted by the respondent who even proceeded to file the Statement of Claim before such arbitrator, without objections to his appointment or jurisdiction. Therefore, the disputes having arisen between the parties, both parties waived the applicability of Section 12(5) of the Act. The appointment being in writing and the filing of the Statement of Claim without any reservation also being in writing, in my opinion, in the facts of the case, the same would amount to an express agreement in writing as required under proviso to Section 12(5) of the Act. Petition dismissed. - OMP(T)(COMM) 84/2017 OMP(T)(COMM) 85/2017 - - - Dated:- 22-11-2017 - HON'BLE MR. JUSTICE NAVIN CHAWLA For the Petitioner : Mr.Chandan Kumar and Mr.Rahul Kumar, Advs. For the Respondent : Mr.Pawan Upadhyay, Mr.Rajesh Chhetri, Mr.Rajeev Chhetri and Ms.Meenakshi Rawat, Advs. ORDER 1. These petitions raise an important and interesting issue of law arising out of Section 12(5) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act ) and proviso thereto. The question of law being as to whether a party, who appoints an arbitrator knowing fully well tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re reading of the above clause would show that in terms thereof, the CMD of the petitioner or his nominee was to act as the Sole Arbitrator. The Supreme Court in TRF Ltd. Vs Energo Engineering Projects Ltd. (2017) 8 SCC 377, interpreting Section 12(5) of the Act and a similar clause in the agreement held as under:- 53. First, we shall deal with Clause (d). There is no quarrel that by virtue of Section 12(5) of the Act, if any person who falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as the arbitrator. There is no doubt and cannot be, for the language employed in the Seventh Schedule, the Managing Director of the Corporation has become ineligible by operation of law. It is the stand of the learned Senior Counsel for the appellant that once the Managing Director becomes ineligible, he also becomes ineligible to nominate. Refuting the said stand, it is canvassed by the learned Senior Counsel for the respondent that the ineligibility cannot extend to a nominee if he is not from the Corporation and more so when there is apposite and requisite disclosure. We think it appropriate to make it clear that in the case at hand we are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the same statutory ineligibility. 5. In the present case, however, the respondent invoked the arbitration clause vide its letter dated 3rd January, 2017. The CMD of the petitioner vide its letter dated 17th January, 2017 appointed/nominated the present Sole Arbitrator for adjudication and determination of the disputes between the parties. I am informed that the Sole Arbitrator held the first sitting on 26th February, 2017. The Statement of Claim was filed by the respondent on 28th April, 2017 and the petitioner took time to file its reply to the same. On 4th July, 2017, the petitioner filed its reply to the said Statement of Claim, however, no objection was taken against the conduct of proceedings by the Sole Arbitrator or its jurisdiction. On 16th August, 2017, the petitioner filed an application under Section 17 of the Act, which was allowed by the Sole Arbitrator. On 5th September, 2017, the proceedings were adjourned for completion of pleadings. It was only on 28th September, 2017 that the petitioner raised a challenge before the Sole Arbitrator on the ground of his ineligibility under Section 12(5) of the Act. This was formally raised by way of an application dated 7th Oc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he other hand, the counsel for the respondent submits that as the Sole Arbitrator had been appointed by the petitioner itself and the respondent had not raised any objection to such appointment, in fact, had opposed the application of the petitioner for substitution not only before the arbitrator but also before this Court, the case was governed by the proviso to Section 12(5) of the Act. In the alternative, it was submitted that as various proceedings had taken place before the arbitrator, which have been referred above, in terms of Section 4 of the Act, the objection to the appointment of arbitrator should be deemed to have been waived by the petitioner. Reference was also made to Section 13(2) of the Act to submit that a party who intends to challenge an arbitrator must do so within 15 days after becoming aware of the constitution of the Arbitral Tribunal or after becoming aware of the circumstances that make such arbitrator ineligible to continue as Sole Arbitrator. Reference was also made to Section 16(2) of the Act to submit that a plea that the Arbitral Tribunal does not have jurisdiction, can be raised not later than the submission of the statement of defence. In the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Arbitration Acts enacted by various countries. Due to certain reasons, working of this Act witnessed some unpleasant developments and need was felt to smoothen out the rough edges encountered thereby. The Law Commission examined various shortcomings in the working of this Act and in its first report i.e. 176th Report made various suggestions for amending certain provisions of the Act. This exercise was again done by the Law Commission of India in its Report No. 246 in August 2004 suggesting sweeping amendments touching upon various facets and acting upon most of these recommendations, the Arbitration Amendment Act of 2015 was passed which came into effect from 23-10-2015. 16. Apart from other amendments, Section 12 was also amended and the amended provision has already been reproduced above. This amendment is also based on the recommendation of the Law Commission which specifically dealt with the issue of neutrality of arbitrators and a discussion in this behalf is contained in paras 53 to 60 and we would like to reproduce the entire discussion hereinbelow: NEUTRALITY OF ARBITRATORS 53. It is universally accepted that any quasi-judicial process, including the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12) 2 SCC (Civ) 37 : AIR 2012 SC 817] and Bipromasz Bipron Trading Sa v. Bharat Electronics Ltd., (2012) 6 SCC 384 : (2012) 3 SCC (Civ) 702, to appoint an independent arbitrator under Section 11, this is not enough. 57. The balance between procedural fairness and binding nature of these contracts, appears to have been tilted in favour of the latter by the Supreme Court, and the Commission believes the present position of law is far from satisfactory. Since the principles of impartiality and independence cannot be discarded at any stage of the proceedings, specifically at the stage of constitution of the Arbitral Tribunal, it would be incongruous to say that party autonomy can be exercised in complete disregard of these principles - even if the same has been agreed prior to the disputes having arisen between the parties. There are certain minimum levels of independence and impartiality that should be required of the arbitral process regardless of the parties' apparent agreement. A sensible law cannot, for instance, permit appointment of an arbitrator who is himself a party to the dispute, or who is employed by (or similarly dependent on) one party, even if this is what the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stice 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, (2011) 1 WLR 1872 : 2011 UKSC 40] in the following words: (WLR p. 1889, para 45) 45. the dominant purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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. 14. From the above judgment, it is apparent that Section 12(5) of the Act has been introduced by the Legislature to allay the fear of partiality or perceived bias of an arbitrator who is in a relationship with parties or counsels or the subject matter of the dispute falling under the Seventh Schedule of the Act. Certainly, such fear cannot be in a party appointing such arbitrator but in the opposite party. Can, therefore, the opposite party waive such an objection against appointment of an arbitrator who suffers from an ineligibility due to his relationship with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appointment was accepted by the respondent who even proceeded to file the Statement of Claim before such arbitrator, without objections to his appointment or jurisdiction. Therefore, the disputes having arisen between the parties, both parties waived the applicability of Section 12(5) of the Act. The appointment being in writing and the filing of the Statement of Claim without any reservation also being in writing, in my opinion, in the facts of the case, the same would amount to an express agreement in writing as required under proviso to Section 12(5) of the Act. 17. Though provisions of Section 7 of the Act may not strictly apply to the present case but it gives an indication, how an express agreement can be inferred. Section 7(3) requires an arbitration agreement to be in writing. However, under sub-section (4) of Section 7, even in the absence of signed agreement between the parties, it would be possible to infer such an agreement from various documents duly approved and signed by the parties in the form of exchange of e-mails, letter(s), telex, telegrams and other means of telecommunications, as was held by Supreme Court in Trimex International Fze Ltd. vs. Vedanta Alum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Model Law, as cited in Law and Practice of International Commercial Arbitration, Alan Redfern and martin Hunter, Street Maxwell, London (1986) at p.388 (citing UN doc.A/CN.9/07, paras 16-27)]. 62) It goes without saying, but in the interest of providing the parties a comprehensive review of their arguments, I note that once it is established that the faxed CPA is valid, it follows that a valid contract and a valid arbitration clause exist. This contract, the faxed CPA, does not suffer from a conditional clause, as did the letter of intent. Thus, the respondent s argument that the parties were not ad idem must fail. 19. It is also of some importance that the Petitioner participated in various proceedings before the Arbitrator that have been noted by me in paragraph 5 above. Neither was any objection to the ineligibility of the Arbitrator taken in those proceedings nor any other ground or circumstance, except the one under Section 12(5) of the Act, has been urged before me. 20. Though again it may not be strictly applicable, the intent of legislature can be gathered from Section 12(4) of the Act which states that a party may challenge an arbitrator appointed by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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