TMI Blog2021 (1) TMI 1210X X X X Extracts X X X X X X X X Extracts X X X X ..... ible to be appointed as an arbitrator. In such an eventuality, i.e., when the arbitration clause is found to be foul with the amended provision, the appointment of the arbitrator would be beyond the pale of the arbitration agreement, empowering the Court to appoint such an arbitrator as may be permissible. It cannot be disputed that in the present case, the Stationery Purchase Committee -Arbitral Tribunal comprising of officers of the respondent-State are all ineligible to become and/or to continue as arbitrators in view of the mandate of sub-section (5) of Section 12 read with Seventh Schedule. Therefore, by operation of law and by amending Section 12 and bringing on statute sub-section (5) of Section 12 read with Seventh Schedule, the earlier Arbitral Tribunal Stationery Purchase Committee comprising of Additional Secretary, Department of Revenue as President and (i) Deputy Secretary, Department of Revenue, (ii) Deputy Secretary, General Administration Department, (iii) Deputy Secretary, Department of Finance, (iv) Deputy Secretary/Under Secretary, General Administration Department and (v) Senior Deputy Controller of Head Office, Printing as Members, has lost its mandate and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er suit seeking recovery of an amount of ₹ 95,32,103/- bearing Civil Suit No. 2-B/1998 before the Civil Court at Bhopal. In the said suit, the respondent preferred an application under Section 8 of the Arbitration Act, 1996 seeking stay of the proceedings on the ground that there exists an arbitration clause in the agreement between the parties. The Civil Court rejected the said application vide order dated 27.02.1999. The respondent filed revision petition No. 1117/1999 before the High Court which came to be allowed by the High Court vide order dated 03.05.2000. The High Court referred the parties to arbitration by the Stationery Purchase Committee comprising of the officers of the respondent. 2.3 Against the order passed by the High Court allowing the revision petition and referring the parties to the arbitration, the appellant herein filed a special leave petition bearing S.L.P.(Civil) No. 13914/2000 before this Court. The same came to be dismissed as withdrawn vide order dated 28.09.2000. 2.4 The Arbitral Tribunal was constituted called as Stationery Purchase Committee comprising the officers of the respondent. The appellant filed its objections to the constitutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction Company, reported in (2020) 2 SCC 464; and S.P. Singla Constructions Pvt. Ltd. v. State of Himachal Pradesh, reported in (2019) 2 SCC 488, the High Court has not agreed with the submission(s) on behalf of the appellant. Referring to the aforesaid decisions of this Court, it is observed and held by the High Court that the Amendment Act, 2015 shall be made effective w.e.f. 23.10.2015 and cannot have retrospective operation in the arbitration proceedings already commenced unless the parties otherwise agree and therefore when in the present case the Arbitral Tribunal was constituted much prior to the Amendment Act, 2015 and the Arbitral Tribunal commenced its proceedings, the Amendment Act, 2015 Section 12(5) of the Arbitration Act, 2016 shall not be applicable. Observing so, the High Court by the impugned judgment and order has dismissed the application filed by the appellant herein under Section 14 read with Sections 11 15 of the Arbitration Act, 1996 and has observed that it would be open for the appellant to participate in proceedings before the Arbitral Tribunal constituted by the respondent as Stationery Purchase Committee. 2.7 Feeling aggrieved and dissatisfied wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch, the High Court has committed a grave error in observing and holding that the arbitration proceedings before the Stationery Purchase Committee Arbitral Tribunal had commenced and that the appellant had participated. It is urged that in the present case, the Stationery Purchase Committee arbitral Tribunal did not commence the arbitration proceedings in view of the stay granted by the High Court in Writ Petition No. 1824/2001, which was operative from 4.5.2001 to 24.01.2017. It is submitted that in fact the earlier incumbents of the Stationery Purchase Committee Arbitral Tribunal retired and no steps were taken to constitute a fresh Arbitral Tribunal. It is therefore contended, it cannot be said that any further steps were taken by the earlier Arbitral Tribunal in the arbitration proceedings. It is submitted that in any case in view of the mandate under Section 12(5) read with Seventh Schedule, the members of the earlier Arbitral Tribunal have lost their mandate and are ineligible to continue as members of the Arbitral Tribunal and therefore a fresh Arbitral Tribunal is to be constituted. 4. While opposing the present appeal, Shri Nachiketa Joshi, learned Advocate appeari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rator has to be appointed as per the Arbitration Act, 1996? 6. It is not in dispute that the High Court earlier constituted the Arbitral Tribunal of Stationery Purchase Committee comprising of officers of the respondent, viz, Additional Secretary, Department of Revenue as President and (i) Deputy Secretary, Department of Revenue, (ii) Deputy Secretary, General Administration Department, (iii) Deputy Secretary, Department of Finance, (iv) Deputy Secretary/Under Secretary, General Administration Department and (v) Senior Deputy Controller of Head Office, Printing as Members. It may be true that the earlier Arbitral Tribunal Stationery Purchase Committee was constituted as per the agreement entered into between the parties. It is also true that initially the said Arbitral Tribunal was constituted by the High Court in the year 2001, however, thereafter Stationery Purchase Committee Arbitral Tribunal could not commence the arbitration proceedings in view of number of proceedings initiated by the appellant. There was a stay granted by the High Court from 4.5.2001 to 24.01.2017 and thereafter in the year 2019, the present application was preferred before the High Court invoking Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ators in view of the mandate of sub-section (5) of Section 12 read with Seventh Schedule. Therefore, by operation of law and by amending Section 12 and bringing on statute sub-section (5) of Section 12 read with Seventh Schedule, the earlier Arbitral Tribunal Stationery Purchase Committee comprising of Additional Secretary, Department of Revenue as President and (i) Deputy Secretary, Department of Revenue, (ii) Deputy Secretary, General Administration Department, (iii) Deputy Secretary, Department of Finance, (iv) Deputy Secretary/Under Secretary, General Administration Department and (v) Senior Deputy Controller of Head Office, Printing as Members, has lost its mandate and such an Arbitral Tribunal cannot be permitted to continue and therefore a fresh arbitrator has to be appointed as per Arbitration Act, 1996. 8. An identical question came to be considered by this Court in the case of Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited (supra), and after considering the decisions of this Court in the case of TRF (supra) and other decisions on the point, in paragraphs 13, 14 and 15, it is observed and held as under: 13. So far as the submission on behalf of the petitioners t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son 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 nonindependence and non-impartiality of such arbitrator would render him ineligible to conduct the arbitration. It is further observed that 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. In paragraphs 16 to 18 it is observed and held as under: 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 arbitration process, must b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12) 2 SCC 759 : AIR 2012 SC 817 and Bipromasz Bipron Trading SA v. Bharat Electronics Ltd., (2012) 6 SCC 384, 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 18 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 parties agreed. The Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sts 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 subset 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, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the categories specified in the Seventh Schedule, he becomes ineligible to act as an arbitrator. It is further observed that once he becomes ineligible , it is clear that he then become dejure unable to perform his functions inasmuch as in law, he is regarded as ineligible . It further is observed in the said decision that where a person becomes ineligible to be appointed as an arbitrator there is no question of challenge to such arbitrator before such arbitrator in such a case i.e. a case which falls under Section 14(1)(a) of the Act gets attracted inasmuch as the arbitrator becomes, as a matter of law (i.e., de jure), unable to perform his functions under Section 12(5), being ineligible to be appointed as an arbitrator and this being so, his mandate automatically terminates, and he shall then be substituted by another arbitrator. 8.1 In the aforesaid decision, this Court also negatived the submission that as the contractor participated in the arbitration proceedings before the arbitrator therefore subsequently, he ought not to have approached the High Court for appointment of a fresh arbitrator under Section 11 of the Arbitration Act, 1996. After referring to the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 of the Act which deals with deemed waiver of the right to object by conduct, the proviso to Section 12(5) will only apply if subsequent to disputes having arisen between the parties, the parties waive the applicability of sub-section (5) of Section 12 by an express agreement in writing. For this reason, the argument based on the analogy of Section 7 of the Act must also be rejected. Section 7 deals with arbitration agreements that must be in writing, and then explains that such agreements may be contained in documents which provide a record of such agreements. On the other hand, Section 12(5) refers to an express agreement in writing . The expression express agreement in writing refers to an agreement made in words as opposed to an agreement which is to be inferred by conduct. Here, Section 9 of the Indian Contract Act, 1872 becomes important. It states: 9. Promises, express and implied.-In so far as a proposal or acceptance of any promise is made in words, the promise is said to be express. In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied. It is thus necessary that there be an express agreement in writing. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove, the impugned judgment and order passed by the High Court is contrary to the law laid down by this Court in the cases of TRF (supra), Bharat Broadband Network Limited (supra) and the recent decision of this Court in the case of Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited (supra). It is held that the earlier Arbitral Tribunal Stationery Purchase Committee comprising of Additional Secretary, Department of Revenue as President and (i) Deputy Secretary, Department of Revenue, (ii) Deputy Secretary, General Administration Department, (iii) Deputy Secretary, Department of Finance, (iv) Deputy Secretary/Under Secretary, General Administration Department and (v) Senior Deputy Controller of Head Office, Printing as Members, has lost its mandate by operation of law in view of Section 12(5) read with Seventh Schedule and a fresh arbitrator has to be appointed under the provisions of the Arbitration Act, 1996. The impugned judgment and order passed by the High Court is therefore unsustainable and deserves to be quashed and set aside. 10. In view of the above and for the reasons stated above, the present appeal succeeds. The impugned judgment and order passed by the High Court of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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