TMI Blog2020 (1) TMI 1670X X X X Extracts X X X X X X X X Extracts X X X X ..... r examining the said clause held that there could be two categories of cases, one where the Managing Director himself is made as an Arbitrator with an additional power to appoint any other person as an Arbitrator and the second where the Managing Director is not to act as an Arbitrator himself but is empowered to appoint any other person of his choice or discretion as an Arbitrator. The Supreme Court in the case of Perkins [ 2019 (11) TMI 1154 - SUPREME COURT] thus relying on the rationale of the decision in TRF Limited [ 2017 (7) TMI 1288 - SUPREME COURT] observed that if the test is the interest of the Appointing Authority in the outcome of the dispute then similar ineligibility would always arise even in the second category of cases. It was observed that if the interest that the authority has in the outcome of the dispute is taken to be the basis for possibility of bias, it will always be present irrespective of whether the matter stands under the first or the second category of cases. The Supreme Court also significantly noted that they were conscious that if such a deduction was drawn from the decision in TRF Limited, in all cases with similar clauses, a party to the agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use, vide notice dated 29.10.2018. The petitioner nominated an advocate as his Arbitrator. The respondent replied to the notice on 28.11.2018 and disagreed with the name proposed by the petitioner. Placing reliance on clause 13.2 of the Agreement and claiming power to unilaterally nominate the Arbitrator, the respondent appointed Ms. Charu Ambwani as the Arbitrator. 4. On 09.01.2019, the petitioner requested the Arbitrator vide a letter to enter upon reference and on 19.01.2019, the first procedural hearing was conducted. The petitioner avers that on 10.01.2019, the Arbitrator addressed a letter to the counsels for the parties seeking consent of the petitioner to her appointment alongwith a disclosure under Section 12 of the Act. The petitioner responded vide a letter dated 14.01.2019 declining consent to her appointment. 5. The petitioner avers that through its counsel it sent an email dated 28.01.2019 to the Arbitrator pointing out that objections regarding procedure and jurisdiction would be raised in due course by the petitioner as per provisions of the Act. On 26.11.2019, the Supreme Court delivered its judgment in Perkins Eastman Architects DPC Anr. vs. HSCC (India) L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presently concerned, a party to the agreement would be disentitled to make any appointment of an Arbitrator on its own and it would always be available to argue that a party or an official or an authority having interest in the dispute would be disentitled to make appointment of an Arbitrator. 21. But, in our view that has to be the logical deduction from TRF Limited. Paragraph 50 of the decision shows that this Court was concerned with the issue, whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an Arbitrator The ineligibility referred to therein, was as a result of operation of law, in that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator. The next sentences in the paragraph, further show that cases where both the parties could nominate respective arbitrators of their choice were found to be completely a differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he arbitration clause envisages the appointment of a Sole Arbitrator by the 'Company' i.e. the respondent herein. The clause is thus hit by the ratio of the judgment in Perkins (supra) wherein the Supreme Court has clearly held that where only one party has a right to appoint a Sole Arbitrator, its choice will always have an element of exclusivity in determining the course of dispute resolution. Thus, the person who has an interest in the outcome or decision of the dispute must not have power to appoint a Sole Arbitrator. 11. Learned counsel also contends that the applicability of de jure termination under Section 12(5) to on-going arbitrations has also been settled by the Supreme Court in the case of Bharat Broadband (supra). In the said case the issue had arisen in the context of applicability of the judgment of the Supreme Court in TRF Limited vs. Energo Projects Limited (2017) 8 SCC 377 to an on-going arbitration. The Supreme Court held that as soon as a clarificatory judgment is pronounced, Section 14 of the Act comes into play, automatically terminating the mandate de jure. Relevant part of the judgment in the case of Bharat Broadband (supra) is as under:- 18. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Engg. Projects Ltd., (2017) 8 SCC 377: (2017) 4 SCC (Civ) 72] of a retired Judge of this Court was set aside as being non est in law, the appointment of Shri Khan in the present case must follow suit. 19. However, the learned Senior Advocate appearing on behalf of the respondent has argued that Section 12(4) would bar the appellant's application before the Court. Section 12(4) will only apply when a challenge is made to an arbitrator, inter alia, by the same party who has appointed such arbitrator. This then refers to the challenge procedure set out in Section 13 of the Act. Section 12(4) has no applicability to an application made to the Court under Section 14(2) to determine whether the mandate of an arbitrator has terminated as he has, in law, become unable to perform his functions because he is ineligible to be appointed as such under Section 12(5) of the Act. 20. This then brings us to the applicability of the proviso to Section 12(5) on the facts of this case. Unlike Section 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 parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acting as an arbitrator. Equally, the fact that a statement of claim may have been filed before the arbitrator, would not mean that there is an express agreement in words which would make it clear that both parties wish Shri Khan to continue as arbitrator despite being ineligible to act as such. This being the case, the impugned judgment is not correct when it applies Section 4, Section 7, Section 12(4), Section 13(2) and Section 16(2) of the Act to the facts of the present case, and goes on to state that the appellant cannot be allowed to raise the issue of eligibility of an arbitrator, having itself appointed the arbitrator. The judgment under appeal is also incorrect in stating that there is an express waiver in writing from the fact that an appointment letter has been issued by the appellant, and a statement of claim has been filed by the respondent before the arbitrator. The moment the appellant came to know that Shri Khan's appointment itself would be invalid, it filed an application before the sole arbitrator for termination of his mandate. 12. Per contra, learned counsel for the respondent contends that the autonomy of the parties to the choice of procedure as cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it fit not to recommend any change on the issue of appointment of an Arbitrator by one party to the agreement, on the ground that there has been a long practice to that effect. It is observed in the Report that the intention of Section 12(5) of the Act was not to prohibit unilateral appointment of an Arbitrator. 16. Learned counsel seeks to distinguish the judgment of the Supreme Court in the case of Perkins (supra) on the ground that the facts of the present case are not the same as in the case of Perkins (supra). It is argued that the Arbitration clause examined by the Supreme Court was distinct from the clause in the instant matter. In the said case, the arbitration clause provided for the Managing Director of one party to appoint an Arbitrator, whereas in the instant case the Company has to appoint the Arbitrator. There is a distinction between a Managing Director and Company acting through its Board of Directors. The judgment in Perkins (supra) seeks to eliminate the purported evil of partiality and bias associated with the appointment of an Arbitrator by the Managing Director when tested on the anvil of Section 12(5) of the Act. The judgment has relied on the principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced on 28.10.2018, when the notice invoking arbitration was issued. 19. The petitioner contends that the judgments relied upon by the respondent on unilateral appointment are no longer good law in view of the judgment of the Apex Court in the case of Perkins (supra). Arbitration Clauses which enable unilateral appointments by the persons or Authorities interested in the outcome of the arbitration can no longer be valid in view of the said judgment. 20. The petitioner further argues that the respondent cannot distinguish the principle laid down in the judgment of Perkins (supra) on the ground that the present Arbitration Clause enables a Company to appoint an Arbitrator unlike the clause in the case of Perkins (supra) where it was the Managing Director, who had the authority to appoint the Arbitrator. He submits that the underlying principle is that no authority having interest in the dispute would be entitled to make an appointment. It is argued that be it a party as an individual or Board of Directors or a Company, no distinction can be drawn applying the principle laid down in the case of Perkins (supra). 21. I have heard the learned counsels for the parties and examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing the ratio of the judgment in the case of Perkins (supra), it is clear that a unilateral appointment by an authority which is interested in the outcome or decision of the dispute is impermissible in law. The Arbitration Clause in the present case empowers the company to appoint a Sole Arbitrator. It can hardly be disputed that the 'Company' acting through its Board of Directors will have an interest in the outcome of the dispute. In the opinion of this Court, the clause is directly hit by the law laid down in the case of Perkins (supra) and the petition deserves to be allowed. 24. The respondent is right in its contention that the autonomy of the parties to the choice of procedure is the foundational pillar of arbitration and that the petitioner had entered into the Distribution Agreement with the Arbitration Clause, out of its free will. The facts in the case of Perkins (supra) were similar where the parties had entered into an agreement in which there was a clause for Dispute Resolution and which empowered the CMD to appoint the Sole Arbitrator. Despite the parties having agreed upon such an Arbitration Clause, the Supreme Court held that the CMD suffered from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collective body of the directors of the company. Thus, the Company is run none other than the Directors collectively. Duties of the Directors have been stipulated in Section 166 of the Companies Act, 2013. A bare perusal of the duties clearly reveals that the Director at all times, has to act in good faith to promote the objects of the Company and in the best interest of the Company, its employees and the shareholders. A Director shall not involve in a situation in which he may have a direct or an indirect interest that conflicts or possibly may conflict with the interest of the Company. It goes without saying that the Directors of the Company as a part of the Board of the Directors would be interested in the outcome of the Arbitration proceedings. The Company therefore, acting through its Board of Directors would suffer the ineligibility under Section 12(5) read with Schedule VII of the Act. The same ineligibility would also apply to any person appointed by the said Company. Thus, in my view, for the purposes of Section 11(6) and Section 12(5) read with Schedule VII, there cannot be a distinction based on the appointing authority being a Company. 26. Insofar as the argumen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to arbitral proceedings commenced before the amendment if the parties agree. In either case, the intention of the legislature remains the same, the negative form conveying exactly what could have been stated positively, with the necessary proviso. Obviously, arbitral proceedings having been subsumed in the first part cannot re-appear in the second part, and the expression in relation to arbitral proceedings would, therefore, apply only to court proceedings which relate to the arbitral proceedings. The scheme of Section 26 is thus clear: that the Amendment Act is prospective in nature, and will apply to those arbitral proceedings that are commenced, as understood by Section 21 of the principal Act, on or after the Amendment Act, and to court proceedings which have commenced on or after the Amendment Act came into force. 28. The respondent has also sought rejection of the petition in view of the judgment of the Supreme Court in the case of Voestalpine (supra). In my view, the said judgment would not help the respondent for more than one reason. The Arbitration Clause in the said case was completely different from the present case, as therein the party was to draw up a panel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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