The Delhi High Court has recently ruled that a party to an arbitration cannot nominate its serving or retired officer as its nominee arbitrator. This view was taken in light of the recent amendments introduced by the Arbitration and Conciliation (Amendment) Act, 2015.
The law was earlier governed inter alia by the Supreme Court judgement in Indian Oil Corporation Ltd. v Raja Transport (P) Ltd (2009) 8 SCC 520, in which it was held that while appointment of employees of private parties is not suitable, there is no bar for an employee of a government/statutory corporation/PSU acting as arbitrator with the proviso that he should not have a nexus with the contract in respect of which the specific dispute may have arisen.
Assignia and the Respondent, Rail Vikas Nigam Ltd entered into an agreement for the Construction of roadbed and other related works in the Lucknow Division of Northern Railways. The Contract contained a procedure for appointment of arbitrators (Clause 20.3) whereby the Respondent was to forward a panel of 5 names to Assignia and Assignia would then have to give its consent for any one name out of the panel to be nominated as arbitrator. The Respondent was to nominate the second arbitrator from the said panel and the third arbitrator was to be chosen by the two arbitrators appointed by the parties.
Disputes arose in relation to the performance of the contract which ultimately resulted in the Respondent terminating it. Assignia approached the Delhi High Court under §11 of the Arbitration & Conciliation Act for appointing a tribunal.
High Court Proceedings:
One of the issues before the court was whether the tribunal be constituted in accordance with Clause 20.3 above or in accordance with the amended Act.
High Court’s Decision:
- The High Court relied upon §12(5) of the amended Act which states that notwithstanding any prior agreement to the contrary, a person, whose relationship with the parties/counsel/subject-matter of the dispute falls under the categories specified in the Seventh Schedule, will be ineligible to be appointed as an arbitrator.
- The Seventh Schedule of the amended Act contains various categories relating to the arbitrator’s relationship with the parties or counsel, which make him ineligible to be appointed as an arbitrator. The first category is “an employee, consultant, advisor” or a person having any other past or present business relationship with a party.
Based on the language of the newly inserted provisions, the court held that “the arbitrator being an employee of one of the parties would definitely give rise to justifiable doubt as to his independence and impartiality” and would defeat the very purpose of amending the Act.
The court also noted that under the Amendment Act, the court is duty bound to secure the appointment of an independent and impartial arbitrator as per the amended §12 of the Act.
In light of the above, the court proceeded to appoint a three member tribunal consisting of retired judges to adjudicate the disputes between the parties.
The decision is an instance where the courts have taken a proactive step in implementing the scheme of the Amendment Act in appointing an independent and impartial tribunal. The decision is significant for government entities and Public Sector Undertakings, who would have to revisit their policies on appointment of arbitrators since similar clauses are likely to be struck down by courts under the amended Act.