Supreme Court of India
ARAVALI POWER COMPANY PVT. LTD.versusMIS. ERA INFRA ENGINEERING LTD.
- Citation
- 2017 INSC 894
- Decided
- 12 September 2017
- Disposal
- Disposed off
Holding
In pre‑amendment cases, an employee arbitrator is not per se disqualified; absent a justifiable apprehension of bias, the appointment stands and the court cannot set it aside without a valid cause of action under Section 11(6).
Summary
Aravali Power Company Pvt. Ltd. (appellant) and M/s. Era Infra Engineering Ltd. (respondent) entered into a contract for constructing a township for a thermal power project, which contained an arbitration clause (Clause 56) stipulating that disputes be referred to the Project In‑charge or, failing that, to a person appointed by the Chairman and Managing Director of NTPC, with no objection even if the arbitrator was an employee of NTPC. The appellant appointed its Chief Executive Officer as sole arbitrator on 19‑08‑2015, before the 2015 amendment to the Arbitration and Conciliation Act. The respondent later challenged the appointment, seeking an independent arbitrator, and filed petitions under Sections 14 and 11(6) of the 1996 Act. The Delhi High Court set aside the appointment and directed the parties to select a new arbitrator. On appeal, the Supreme Court held that, for disputes arising before the 2015 amendment, the mere fact that an arbitrator is an employee of a party does not automatically create a presumption of bias; only a justifiable apprehension—such as the arbitrator being the controlling authority or a direct subordinate—would invalidate the appointment. No such apprehension was shown, and the respondent had not raised a timely challenge under the procedure prescribed in Sections 12‑13. Consequently, the High Court lacked jurisdiction under Section 11(6) and erred in interfering with the arbitration. The appointment of the CEO as arbitrator was upheld and the arbitration was ordered to proceed.
Issues considered
- The validity of appointing an employee of one party as sole arbitrator under the pre‑2015 Arbitration and Conciliation Act.
- Whether the respondent’s challenge under Section 11(6) of the 1996 Act was maintainable.
- Whether the High Court had jurisdiction to set aside the arbitrator’s appointment.
- Whether the appointment created justifiable doubts about the arbitrator’s independence or impartiality.
Legislation cited
- Arbitration and Conciliation Act, 1996s. 11(6), s. 12, s. 13, s. 14, s. 15, s. 18
- Arbitration and Conciliation (Amendment) Act, 2015
Subjects
arbitrationarbitrator appointmentemployee arbitratorindependenceimpartialitySection 11(6)Section 12pre‑amendmentcontractual arbitration clausechallenge procedure
Judgment
[2017] l l S.C.R. 497
ARAVALI POWER COMPANY PVT. LTD. A
v.
MIS. ERA INFRA ENGINEERING LTD.
(Civil Appeal Nos. 12627-12628 of2017)
SEPTEMBER 12,2017 B
[ADARSH KUMAR GOEL AND UDAY UM ESH LALIT, JJ.[
Arbitration and Conciliation Act. )996 - ss.11(6), 12 and 13
- Appointment of employee of a parzv as arbitrator - Challenge to
- Contract between appel/ant-APCPL amt respondent-E!EL for
cons/ruction work of permanent township for a thermal power
c
project - Di.1putes arose between parties - Appel/am appointed its
Chief Executive Ojjicer (CEO) as the sole Arbitrator - Parties
appeared bejore Arbitrator - However. later Respondent challenged
the constitution ofarbitral tribunal - Objection rejected by Arbitrator
- Petition by respondent before High Cimrl uls.11(6) for appointing D
<Ill independent arbitrator - High Court set aside the appointment
of the Arbitrator alrea<~V appointed by Appel/an/ - On appeal, held:
Mere ji1c/ that the arbitrator is a11 employee is nor ipso facto a ground
to raise any presumption of bias or partiality - In the i11slant case.
·the Arbitrator was nor the Engineer In-charge or the day-to-day ln-
E
charge of the work - The appointed Arbitrator was neither the
Dealing Authorizv in regard to the Contract nor was direct~v sub-
ordinate to the Ojjicer(I) whose decision was the sul~iect ma/11!1" of
dispute - There is nothing on record which could raise doubts about
the independence or impartiality of the Arbitrator - Thus,
appointment of the Arbitrator in question cannot be termed lo be F
illegal or 11nenjiJ1·ceahle - F11rthe1; the respondent itself participated
in the arbitration proceedings and did not raise any challenge in
terms of the procedure prescribed under the Act - No cause of action
for exercise of power u/s.11 (6) had arisen in the present case -
High Court erred in exercising jurisdiction in the present case and G
it ought not lo have interfered with the process and progress of
arbitration - Arbitration, in pursuance of the appointment of the
Arbitrator to proceed in accordance with law.
Arbitration and Conciliation Act, 1996 - s.12 - Grounds for
challenging tire appointment of arbitrator-Before 2015 Amendment
H
497
498 SUPREME COURT REPORTS [2017] l l S.C.R.
A . Act- Contract between appel/ant-APCPL and respondent-ElEL -
Disputes arose between parties - As per the contract, appellant
appointed its Chief Executive Officer (CEO) as the sole Arbitrator
on 19.08.2015 i.e. before 2015 Amendment came into force -
Questioning the independence of the Arbitrator already appointed,
B petition ji/ed by respondent before High Court for appointing an
independent arbitrator - Held: s.12(1) as it stood before the 2015
Amendment, obliged the person approached in connection with
possible appointment as an arbitrator. to disclose in writing any
circwn.!lances likely to give rise to justifiable doubts as to his
independence or impartiality - It is not the case of the respondent
c that there had not been any fair and correct disclosure - Thus, the
fi1ct that the already appointed arbitrator happens to be an employee
of one of the parties to the arbitration agreement does not by itse!t:
bejiJre the Amendment Act ca111e into force. render such appointment
invalid and unenforceable - Further, in pre-amendme/l/ cases, the
terms of the agreement 011gh1 to be adhered to and/or given effect
D
to as c/ose(1' as possible - Arbitration and Conciliation(Amendment}
Act, 2015.
A1-hitration and Conciliation Act, 1996 - s.l/(6) - Scheme of
appointment of arbitrators - Exercise of power under - Pre and
E post 2015 amendment - Princ1/J/es enunciated - Arbitration and
Conciliation(Amendment) Act, 2015.
Disposing of the appeals, the Court
HELD: l.l In the present case, the contract provided for
arbitration by the Project In-charge of the concerned Project,
F . and in case such Project In-charge were to be unable or unwilling
to act, arbitration by any person appointed by the Chairman and
Managing Director. It further provided inter a/ia that there would
be no objection even if the Arbitrator had dealt with the matters
to which the contract related in the course of his duties or had
expressed views on all or any of the matters in dispute or
G difference. The fact that the named arbitrator happens to be an
employee of one of the parties to the Arbitration Agreement has
not by itself, before the Arbitration and Conciliation(Amendment)
Act, 2015 came into force, rendered such appointment invalid
and unenforceable. In pre-amendment cases, the law laid down
in Northern Raibvtry Atl111i11istratio11, must be applied, in that the
H
ARAVALI POWER COMPANY PVT. LTD. v. M/S. ERA INFRA 499
ENGINEERING LTD.
terms of the agreement ought to be adhered to and/or given effect A
to as closely as possible. [Paras 16, 17 and 21][512-E-G; 523-E)
Northern Railway Admi11istratio11. llfinistry of Railway,
New Delhi v. Patel Engineering Company Ltd. (2008)
10 SCC 240 : (2008] 12 SCR 216 - held applicable.
. 1.2 Section 12(1), Arbitration and Conciliation Act, 1996 as B
it then stood before the 2015 Amendment Act came into force,
obliged the person approached in connection with possible
appointment as an arbitrator, to disclose in writing any
circumstances likely to give rise to justifiable doubts as to his
independence or impartiality. In the present case, the Arbitrator c
undoubtedly is an employee of the Appellant-Aravali Power
Company Pvt. Ltd., but so long as there is no justifiable
apprehension about his independence or impartiality, the
appointment could not be rendered invalid and unenforceable.
Mere fact that the arbitrator is an employee is not ipso facto a
ground to raise any presumption of bias or partiality. It is not the D
case that there had not been any fair and correct disclosure. All
that the Respondent-Mis. Era Infra Engineering Ltd. alleged in
its petition \Vas, " ..... he has himself in his official capacity in the
Respondent-Company dealt with contracts of nature similar to
the contract works in question .... ". The Respondent, while relying E
on the provisions of the Amendment Act had also submitted, " ....
allegedly appointed individual is the Chief Executive Officer of
the Respondent herein, who on account of such position also has
the controlling influence over the Respondent-Company". Al the
same time, the High Court observed that the Arbitrator was not
the Engineer In-charge or the day-to-day In-charge of the work F
and as a matter of fact, the Engineer In"charge was AGM (CCD-
Township) who had a .team of other Engineers working under him
and that AG!H (CCD~Township) rc1iortcd to AGi\l (i\lE-CCD)
who in turn reported to CEO (APCPL) i.e. the Arbitrator. The
facts on record and the hierarchy do not show that the Arbitrator G
in the Jlresent mailer was either the Dealing Authority in regard
to the Contract or was directly sub-ordinate to the Officer(s)
whose decision is the subject matter of diSJIUte. In fact, the
decision, which could be subject matter of dispute, was that of
his subordinates. He may have dealt with contracts of nature
H
500 SUPREME COURT REPORTS (2017] 11 S.C.R.
A similar to the contract works in question but that by itself docs
not render the appointment invalid. Since there is nothing on
record which could raise justifiable doubts about the independence
or impartiality of the named Arbitrator, the appointment of the
Arbitrator could not in any way be termed to be illegal or
unenforceable. [Para 191(514-D-H; 515-A-C)
B
Indian Oil Corporation Ltd. and Others v. Raja
Transport Private ltd. (2009) 8 SCC 520 : [2009! 13
SCR 510 - relied on.
1.3 The principles which emerge arc:-
c A. In cases governed by 1996 Act us it stood before the
Amendment Act came into force:-
(i) The fact that the named arbitrator is an employee of
one of the parties is not ipso ji1cto a ground to raise a presumption
of bias or partiality or lack of independence on his part. ThHe
D can however be a justifiable apprehension about the independence
or impartiality of an employee arbitrator, if such person was the
controlling or dealing authority in regard to the subject contract
or if he is a direct subordinate to the officer whose decision is the
subject-matter of the dispute.
E (ii) Unless the cause of action for invoking jurisdiction under
Clauses (a), (b) or (c) of sub-section (6) of Section 11 of 1996 Act
arises, there is no question of the Chief Justice or his designate
exercising power under sub-section (6) of Section 11.
(iii) The Chief Justice or his designate while exercising
F power under sub-section (6) of Section 11 shall endeavour to give
effect to the appointment procedure prescribed in the arbitration
clause.
(iv) While exercising such power under sub section (6) of
Section 11, if circumstances exist, giving rise to justifiable doubts
G as to the independence and impartiality of the person nominated,
or if other circumstances warrant appointment of an independent
arbitrator by ignoring the procedure prescribed, the Chief Justice
or his designate may, for reasons to be recorded ignore the
designated arbitrator and appoint someone else.
H
ARAVALI POVVER COMPANY PVT. LTD. v. MIS. ERA INFRA 501
ENGINEERING LTD.
B. In cases governed by 1996 Act after the Amendment A
Act has come into force:-
If the arbitration ·c1ause finds foul with the amended
provisions, the appointment of the Arbitrator even if apparently
in conformity with the arbitration clause in the agreement, would
be illegal and thus the Court would be within its powers to appoint B
such arbitrator(s) as may be permissible. (Para 22)(523-G-H; 524-
A-F)
1.4 The procedure as laid down in unamended Section 12
mandated disclosure of circumstances likely to give rise to
justifiable doubts as to independence and impartiality of the c
:irbilrator. It is not the case of the Respomlfnt that the pro,·isions
of Section 12 in unamended form stood violated on any count. In
any case the provision contemplated clear and precise procedure
under which the arbitrator could be challenged and the objections
in that behalf under Section 13 could be raised within prescribed
time and in accordance with the procedure detailed therein. The D
record shows that no such challenge was raised within the time
and in terms of the procedure prescribed. As a matter of fact, the
Respondent had participated in the arbitration and by its
communication dated 04.12.2015 had sought extension of time
to lite its statement of claim. In the circumstances, the High Court E
was clearly in error in exercising jurisdiction in the present case
·and it ought not to have interfered with the process and progress
of arbitration. The arbitration, in pursuance of the appointment
of the Arbitrator on 19.08.2015, shall proceed in accordance with
law. [Paras 23, 24][524-H; 525-A-CI
F
l'oestalpinc Schienen GMB/f v. Delhi Metro Rail
Corporation Limited (2017) 4 SCC 665 - distinguished.
ACE Pipeline Contracts (P) Ltd. '" Bharat Petmleum
Corpn. Ltd. (2007) 5 SCC 304 : (2007] 4 SCR 777;
Union of India v. Bharat Ballery Manufacturing Co. G
(P) Ltd. (2007) 7 SCC 684 : (2007] 8 SCR 993; Union
of India V. Singh Builders Syndicate (2009) 4 sec 523 :
(2009] 3 SCR 563: Dene/ (Proprietary) Limited "·
Bharat Electronics Limited and Another (2010) 6 SCC
394 : [20 IO] 6 SCR 784: Datar Switchgears Ltd. v. Tata
H
502 SUPREME COURT REPORTS [2017] I I S.C.R.
A Finance Ltd. (2000) 8 SCC 151; Bhupinder Singh
Bindra v. Union of India (1995) 5 SCC 329 : (1995] 2
Suppl. SCR 417; Dene/ (Proprietary) Limited v.
Ministry a/Defence (2012) 2 SCC 759 : (2012] 2 SCR
897: Union of India and Others v. VIiar Pradesh State
Bridge Corporation Limited (2015) 2 SCC 52; Tripple
B
Engg. Works v. North Eastern Railway & Ors. (2014) 9
SCC 288 : (2014] 6 SCR 1143 - referred to.
Case Law Reference
[2009[ 13 SCR 510 relied on Para 20
c (2008] 12 SCR 216 held applicable Para 20
[2007) 4 SCR 777 referred to Para 20
(2007] 8 SCR 993 referred to Para 20
(2009) 3 SCR 563 referred to Para 20
D
[2010) 6 SCR 784 referred to Para 20
c20ooi s sec 151 referred to Para 20
[1995[ 2 Suppl. SCR 417 referred to Para 20
(2012] 2 SCR 897 referred to Para 20
E
c201s) 2 sec 52 referred to Para 20
[2014) 6 SCR 1143 referred to Para 20
(2011i 4 sec 665 distinguished Para 20
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 12627-
F·
12628 of2017.
From the Judgment and Order dated 29.07.2016 of the High Court
of Delhi at New Delhi in 0. M. P. (T) (Comm.) No. 13/2016 and Arb. P.
No.136of2016
G WITH
Civil Appeal Nos. 12629-12630of2017.
Vikas Singh, Sr. Adv., Bharat Sangal, Ms. Vcrnika Tomar, Ms.
Dipika Kali a, Ms. Vidushi Garg, Manoj K. Singh, Prem Prakash, Advs.
for the appearing pal1ics.
H
ARAVALI POWER COMPANY PVT. LTD. v. M/S. ERA INFRA 503
ENGINEERING LTD.
The Judgment of the Court was delivered by A
UDAY UMESf{ LALIT, J. J. Leave granted. These appeals
challenge the conunon judgment and order dated 29.07.2016 passed by
the High Court of Delhi at New Delhi in O.M.P. (T) (Comm.) No.13/
2016 and Arbitration Petition No.136/2016.
2. Construction work of permanent township for Indira Gandhi B
Super Thermal Power Project at Jhajjar, Haryana was awarded to the
Respondent- Mis Era Infra Engineering Ltd. on 20.05.2009 and contract
dated 17 .11.2009 signed thereafter broadly consisted of General
Conditions of Contract (GCC) and Special Conditions of Contract (SCC).
Clause 56 of the GCC stipulated arbitration between the parties in c
fol)owing terms:-
"56. ARBITRATION:-
Except where otherwise provided for in the contract all questions
and disputes relating to the meaning of the specifications, designs,
drawings and instructions herein before mentioned and as to the D
quality of workmanship or materials used on the work or as to
any other questions, claim, rights, matter or thing whatsoever in
any way arising out of or relating to the contract. design, drawing,
specifications, estimates, instructions, orders or these conditions
of othc1wise concerning the works, or the executions or failures E
to execute the same whether arising during the progress of the
work or after the completion or abandonment thereof shall be
referred to the Sole Arbitration of the Project In-charge of the
Project concerned of the owner, and if the Project In-charge is
unable or unwilling to act, to the sole arbitration of so111e other
persons ;1ppointcd by the Chairman and Managing Director, NTPC F
limited (Formerly National Thermal Po)l'er Corporation Ltd)
willing to act as such Arbitrator. There will be no objections, if
the Arbitrator so appointed is an employee of NTPC Limited
(Formerly National Thermal Power Corporation Ltd), and that he
had to deal with the matters to which the contract relates and that
G
in the course of his duties as such he had expressed views on all
or any of the matters in disputes or difference. The Arbitrator to
whom the matter is originally referred being transferred or vacating
his office or being unable to act for any reason as aforesaid at the
time of such transfer, vacations of office or inability to act,
H
504 SUPREME COURT REPORTS l20l 7] l 1 S.C.R.
A Chairman and Managing Directors, NTPC limited (Formerly
National Thermal Power Corporation Ltd.), shall appoint another
person to act as Arbitrator in accordance with the terms of the
contract. ..... ··
3. According to the Appcllant-Aravali Power Company Pvt. Ltd.,
B scheduled date of completion of work was l 9.05.20 I I hut the progress
of work was quite slow which compelled the Appellant to cancel certain
remaining works by its letters dated I 8.07.2014, 24. l 0.2014, 30.06.2015
and 08.07.2015. By its letter dated 29.07.2015 the Respondent alleged
that the delays in the project were not attributable to the Respondent
and after setting out certain grievances, the letter thereafter sought to
c invoke arbitration submitting further that arbitration be through a retired
Judge of the High Court, the relevant portion of the letter bcing:-
"ln view of the above circumstances and inaction of APCPL
towards settlement of our claims/payments, we hereby invoke
Arbitration Clause of the Contract Agreement request your good
D self to appoint Arbitrator for settlement of our claims according to
Clause 56 of GCC of the Contract Agreement.
However, we want to draw your attention to the legal point that
once the order of part caned la ti on has been passed at the Highest
Level of the OwnerfEmploycr, hence, any forum for resolution of
E dispute constituted by the said authority & particularly its
subordinate is of no legal consequence. It is a well settled
proposition of law that nobody can be judge in its own cause.
Therefore. in light of the aforesaid settled position of law, we
seek an independent arbitration, through a rdircd Hon'ble Judge
F ofthe Hon'ble High Court so as to seek vindication of ow· grievance
as mentioned in foregoing paras. Since the matter is utmost
important, we hereby request that a panel of independent Arbitrators
may kindly be made available to us so that we can choose from
the panel. We would also be agreeable to the constitution of an
Arbitral Tribunal comprising of nominee of your company; our
G nominee and both the nominee arbitrators appointing the Presiding/
Umpire Arbitrator. We request that an early action in this regard
may kindly be taken, in accordance with law."
4. In response, while refuting the allegations in the letter under
reply, the Appellant proceeded to appoint its Chief Executive Officer as
H
ARAVALI POWER COMPANY PVT. LTD. v. MIS. ERA INFRA 505
ENGINEERING LTD. [UDAY UMESH LAUT, J.]
the sole Arbitrator on 19.08.2015 and intimated the respondent on the A
same day in following terms:
"Please note that in terms of the Arbitration Clause 56 of the
GCC there is no provision for selection by you ofArbitrator from
any panel of Arbitrators to be offered by us. There is also no
provision for formation of an Arbitral Tribunal as suggested by B
you. Clause 56 of the GCC envisaged the appointment of the
designated officers as Arbitrator and accordingly the Chief
Executives Officer APCPL on your request, has been designated
as the Sole Arbitrator. The Learned Arbitrator shall inform you
of the Arbitral proceedings in time."
c
By further communication dated 26.09.2015 the Appellant
reiterated its stand taken in letter dated 19.08.2015.
5. In the meanwhile, the Arbitrator so appointed fixed the first
hearing in arbitration on 07. l 0.2015. The parties appeared on 07.10.2015
and the proceedings show that the hearing was fixed on 09.04.2016 by D
which time there was to be completion of filing of statement ofresponse
to counter claim etc. The proceedings do not show any objection having
been raised by the Respondent regarding continuation of the arbitration
proceedings. On 04.12.2015 a letter was addressed by the Respondent
to the Arbitrator seeking extension of time to file its statement of claim.
It was stated, inter alia: E
"In the last-hearing held on 07.10.2015 the Claimant was given
60 days' time to file its Statement of Claim. In this connection it
is to state that we need to collect some more data and files from
our other offices to make the Statement of Claim. For that purpose,
we need about one month fu11her time to submit our Statement of F
Claim.
It is therefore, requested that the Ld. Sole Arbitrator may kindly
grant one month further time to the Claimant to file its Statement
of Claim."
G
According to the record.. the Arbitrator granted one month's time,
as prayed for.
6. On 01.01.2016, the Arbitration and Conciliation (Amendment)
Act, 20 15 (hereinafter referred to as "the Amendment Act") was
H
506 SUPREMI::' COURT REPORTS (2017J 11 S.C.R.
A gazetted and according to Section 1(2), the Amendment Act was deemed
to have come into force on 23'' October, 2015.
7. For the first time on 12.01.2016, the Respondent sought to
challenge the Arbitrator and raised objection regarding constitution of
the arbitral tribunal as under:
B "In reference to the above referred communications addre>sed
by us, we hereby state that the constitution of the present arbitral
tribunal is wholly invalid/void & against the settled principles of
law, and on account of which Era Infra Engineering Ltd. is seeking
appropriate legal remedies by approaching the Hon'ble High Court
c for appointment of an Independent Arbitral Tribunal. Accordingly,
we hereby request your good self to kindly restrain yourself from
assuming reference and seeking to proceed with the present alleged
proceedings, till the final outcome of the above referred legal
proceedings, sought to be immediately & urgently filcd/prefcn-ed
by Era lnfrn Engineering Ltd."
D
8. The objection was rejected by the Arbitrator on 22.01.2016 on
the ground that the Respondent had participated in the arbitral proceedings
on 07.10.2015 without raising any protest. The Respondent was then
intimated to attend proceedings in arbitration scheduled to be held on
16.02.2016. The Respondent however, approached the High Court of
E Delhi by filing petition under Section 14 of the Arbitration and Conciliation
Act, l 996 (hereinafter referred to as ·• 1996 Act"), registered as
OMP(T)(Comm.) No.13/2016, seeking termination of the mandate of
the Arbitrator. Grounds I, IV, VI, VII and VJll raised in the petition
were:-
F It is submitted that it is a settled principle oflaw that nobody
can be a judge in his own cause. In other words, a party to the
Agreement cannot be an arbiter in his own cause. It is submitted
that interest ofjustice and equity require that where a party to the
contract disputes the committing of any breach of the condition,
the adjudication should be by an independent person or body and
G
not by the other party to .the contract.
IV That without prejudice to the above, it would also be relevant
to mention herein that the allegedly appointed Arbitrator namely,
Shri S.K. Sinha, would also be otherwise unable to perform the
functions of an independent Arbitrator, in as much as, he has
H
ARAVALI POWER COMPANY PVT. LTD. v. MIS. ERA INFRA 507
ENGil;<EERING LTD. [UDAY UMESH LAUT, J.)
himself, in his official capacity in the respondent-company, dealt A
with contracts of nature similar to the contract works in question
herein (including the present contract works), on behalf of the
respondent-company.
VI That it would also be worth mentioning that the Hon'ble
Courts have consistently held and observed that the policy of the B
GovernmenVStatutory Authorities/Pubic Sector undertakings. to
provide/appoint for arbitration by an Employee Arbitrator is a
vexed problem which requires reconsideration, which is more so
in deference to the specific provisions of the new Act reiterating
the need for an independent and impartial Arbitrator.
c
VII That in furtherance of the aforementioned spirit as reiterated
by the Hon'ble Courts, the Act has also been suitably amended
by the Legislature, whereby, inter alia, it has been expressly
provided thatanArbitratorwho is an Employee, Manager, Director
or part of the Management or has a similar controlling influence
in one of the parties to the arbitration, is a valid ground giving rise D
to justifiable doubts as to the independence or impartiality of an
Arbitrator. Furthermore, it has also been provided that an
Arbitrator's previous involvement in the case/subject matter would
also be a valid ground giving rise to justifiable doubts as to the
independence or impartiality of an Arbitrator. E
VIII That in the present case, as brought out above, the alleged
Arbitrator so appointed by the respondent herein is an employee
of the respondent herein itself. In fact, the allegedly appointed
individual is the Chief Executive Officer (CEO) of the respondent
herein, who on account of such position also has a controlling F
influence over the respondent-company. against whom the
petitioner herein seeks to assert its claims. In such circwnstances,
the said allegedly appointed arbitrator would both in law and fact
be unable to perform his functions as an Arbitrator in an
independent or impartial manner.
G
9. On the same day, another petition being Arbitration Petition
No. l 36 of 2016 was filed by the Respondent under Section l I (6) of
1996 Act for appointing an independent arbitrator for adjudicating disputes
between the parties. The cause of action, as pleaded, in the said petition
was:~
H
508 SUPREME COURT REPORTS [2017] l I S.C.R.
A "That the cause of action for filing the present petition arose on
the various dates when requests were made by the petitioner to
the respondent for issuance of long outstanding payments. The
cause ofaction fortherarose on 29.07.2015 when arbitration was
invoked by the petitioner. The cause ofaction further arose, when
the respondent erroneously and illegally rejected the petitioner's
B
request for appointment of an independent Arbitral Tribunal. which
cause ofaction is still subsisting and continuing since the respondent
has failed to make the outstanding payment and to >O appoint an
independent Arbitral Tribunal."
10. On 01.03.2016 the High Court issued notice and stayed further
c proceedings in arbitration. The matter was contested by the Appellant
submitting, inter alia. that the petition under Section 14of1996 Act was
not maintainable; that the Arbitrator was appointed strictly in terms of
Clause 56 of the GCC; and that though the Respondent was informed
about appointment of the Arbitrator on 19.08.2015, no steps to challenge
D the appointment were undertaken within the time specified and in the
manner prescr[bed under 1996 Act.
II. The High Com1 by its judgment and order under Appeal set
aside the appointment of the Arbitrator and directed the Appellant to
suggest names of three- panel Arbitrators from different departments to
E the Respondent who could thcrcatier choose any one of them to be the
Arbitrator in the matter. It was directed that in the event of failure by
the Appellant, the Respondent would be at liberty to revive the petitions,
in which case the Court would appoint a sole Arbitrator from the list
maintained by Delhi International Arbitration Centre. It was also observed
that the Arbitrntor was CEO of the Appellant and was previously involved
F in cases/contract works similar to the one involved in the present case
and it could not be disputed that the decisions of part cancellation were
taken at the highest level of the Appellant. [n the circumstances, the
High Cou11 found that the apprehension entertained by the Respondent
was reasonable and not a vague or general objection. The observations
G of the High Court werc:-
" 13. The Arbitrator, though the CEO of the respondent-Company
and the Project In-charge of the Indira Gandhi Super Thermal
Power Project, P.O. Jharii, Distt. Jhajjar, Haryana, was not the
Engineer Jn-charge or the day-to-day In-charge of the work,
which was to be performed by the petitioner under the contract in
H
ARAVALI POWER COMPANY PVT. LTD. v. MIS. ERA INFRA 509
ENGINEERING LTD. [UDAY UMESH LALIT, J.j
question. In fact, the Engineer In-charge for this project is AGM A
(CCD-Township) who is supported by Group of Engineers (Dy.
Managers, Managers & Sr. Managers) working under him for
execution of the work. Further, the AGM (CCD-Township)
reports to AGM (ME/CCD) who in turn reports to CEO
(APCPL).
B
37. lt is common parlance oft-quoted aphorism "Not only must
Justice be done; it must also be seen to be done." The reason is
that rules are moral constructs that are meant to serve higher value.
The amendment of 2015 emphasize that the existence of any
relationship or interest of any kind is likely to give rise to justifiable
doubts as to his neutrality is to be avoided or any employee,
c
manager, director, or has past or present business or has a
controlling influence, relationship with a party to the dispute should
not be appointed as an Arbitrator. Similarly, it is rightly mandated
in the Fifth Schedule of the Amended Act. 2015 (3 of 2016) that
if the Arbitrator has within the past three years been appointed on D
two or more occasions by one of the parties and the Arbitrator
has served within the three years in another arbitration on a
related issue involving one of the parties, his appointment would
give rise to justifiable doubts as to the independence or impartiality
of nrbitrators. No doubt, the invocation was about three months
prior to amendment. But the Court has to keep in mind about the E
purpose and scope of the Act.
3 8. In the present case, no doubt, the invocation was on the basis
of un-amended Act but still wider Section 12 of the Act would give
the similar indication. The sole Arbitrator appointed by the
respondent admittedly is CEO and Executive of the respondent- F
Company who is also from the same office/department. In order
to maintain the neutrality. or to avoid any donbt in the mind of the
petitioner and the reasons given in the petition, it would be
appropriate that independent sole Arbitrator should be appointed
as ultimately neutral person has merely to decide the dispute G
between the parties. Even, the object and scope of the Act says
so, that an arbitration procedure should be fair and unbias. Thus,
the appointment of Mr. S.K. Sinha, CEO of the respondent
Company is terminated and once the Arbitrator's appointment is
terminated, the Court can consider the prayer of the petitioner."
H
510 SUPREME COURT REPORTS [2017] 11 S.C.R.
A 12. The decision of the High Court is challenged by the Appellant
and Mr. Vikas Singh, learned Senior Advocate submitted, inter a/ia,
that as the appointment of the Arbitrator was completely in tune with
Clause 56 of the GCC there was no occasion for the High Court to
exercise any power or jurisdiction and that 1996 Act contemplated clear
and definite procedure for challenging the Arbitrator, and even if such
B
challenge were to fail the remedy under Section 13 was specific and of
different nature. In either case, according to him, the Respondent could
not have approached the High Court and both the petitions ought not to
have been entertained.
13. To the extent the High Court had directed the Appellant to
c submit three names from its panel of Arbitrators from which list the
Respondent was to select the sole Arbitrator. the Respondent challenged
that part of the Judgment by filing SLP (Civil) Nos.503-504 of 2017.
Appearing for the Respondent, Mr. Manoj K. Singh, learned Advocate
relied upon some decisions of this Court and submitted that an Officer
D who had either dealt with the project or was direct! y subordinate to the
Authority whose decision was the subject matter of dispute could not be
an arbitrator in the matter.
14. At the outset, it must be stated that the invocation ofarbit.ration
in the present case was on 29.07.2015, the Arbitrator was appointed on
E 19.08.2015 and th~ parties appeared before the Arbitratoron 07.10.2015,
well before 23.10.2015 i.e. the date on which the Amendment Act was
deemed to have come into force. The statutory provisions that would
therefore govern the present controversy arc those that were in force
before the Amendment Act came into effect. We must mention here
that both the parties have addressed their submissions on this premise.
F
15. Before we consider the present controversy. we may quote,
for facility. Sections 12, 13 and 14 of 1996 Act as they stood before the
Amendment Act came into force:-
"12. Grounds for challenge.-
G (I) When a person is approached in connection with his possible
appointment as an arbitrator, he shall disclose in writing any
circumstances likely to give rise to justifiable doubts as to his
independence or impartiality.
(2) An arbitrator, from the time of his appointment and throughout
H
ARAVALI POWER COMPANY PVT. LTD. v. MIS. ERA INFRA 511
ENGINEERING LTD. [UDAYUMESH LAUT, J.]
the arbitral proceedings, shall, without delay, disclose to the parties A
in writing any circumstances referred to in sub-section (I) unless
they have already been informed of them by him.
(3) An arbitrator may be challenged only if-
( a) circumstances exist that give rise to justifiable doubts as to
his independence or impartiality, or B
(b) he does not possess the qualifications agreed to by the
parties.
(4) A party may challenge an arbitrator appointed by him, or in
whose appointment he has participated, only for reasons of which C
he becomes aware after the appointment has been made.
13. Challenge procedure.-
(!) Subject to sub-section (4), the parties are free to agree on a
procedure for challenging an arbitrator.
D
(2) Failing any agreement referred to in sub-section(!), a party
who intends to challenge an arbitrator shall, within fifteen days
after becoming aware of the constitution of the arbitral tribunal or
after becoming aware of any circumstances referred to in sub-
section (3) of section 12, send a written statement of the reasons
for the challenge to the arbitral tribunal. E
(3) Unless the arbitrator challenged under sub-section (2)
withdraws from his otlice or the other party agrees to the challenge,
the arbitral tribunal shall decide on the challenge.
( 4) If a challenge under any procedure agreed upon by the parties
or under .the procedure under sub-section (2) is not succcssfµl, F
the arbitral tribunal shall continue the arbitral proceedings and
make an arbitral award.
(5) Where an arbitral award is made under sub-section (4), the
party challenging the arbitrator may make an application for setting
aside such an arbitral award in accordance with section 34. G
(6) Where an arbitra.l award is set aside on an application made
under sub-section (5), the Court may decide as to whether the
arbitrator who is challenged is entitled to any fees.
H
512 SUPREME COURT REPORTS [2017] ll S.C.R.
A 14. Failure or impossibility to act-
( I) The mandate of an arbitrator shall terminate if-
( a) he becomes de jure or de facto unable to perform his
functions or for other reasons fails to act without undue delay;
and
B
(b) he withdraws from his office or the parties agree to the
termination of his mandate.
(2) If a controversy remains concerning any of the grounds referred
to in clause (a) of sub-section (I), a party may, unless otherwise
c agreed by the parties, apply to the Court to decide on the termination
of the mandate.
(3) If, under this section or sub-section (3) of section 13. an
arbitrator withdraws from his office or a party agrees to the
termination of the mandate of an arbitrator, it shall not imply
D acceptance of the validity ofany ground referred to in this section
or sub-section (3) of section 12."
16. In the present case Clause 56 of the GCC provides for
arbitration by the Project In-charge of the concerned Project, and in
case such Project In-charge were to be unable or unwilling to act.
arbitration by any person appointed by the Chairman and Managing
E
Director. It further provides illler alia that there would be no objection
even if the Arbitrator had dealt with the matters to which the contract
related in the course of his duties or had expressed views on all or any of
the matters in dispute or difference.
17. The fact that the named arbitrator happens to be an employee
F
of one of the parties to the Arbitration Agreement has not by itself,
before the Amendment Act came into force, rendered such appointment
invalid and unenforceable. The observations of this Court in b11Jiu11 Oil
Corporation Ltd. and Others v. Raju Transport Private Ltd. 1 in
paragraphs 28, 30, 31 and 32 arc quite clear. Said paragraphs were as
G under:
"28. It is contended by the respondent that in view of the emphasis
on the independence and impartiality of an arbitrator in the new
Act and having regard to the basic principle ofnatural justice that
no man should be judge in his own cause, any arbitration agreement
H • (2009) s sec s20
ARAVALI POWER COMPANY PVT. LTD. v. MIS. ERA INFRA 513
ENGINEERING LTD. [UDAY UMESH LAUT, J.]
to the extent it nominates an officer of one of the parties as the A
arbitrator, would be invalid and unenforceable.
30. We find no bar under the new Act. for an arbitration agreement
providing for an employee of a Government/statutory corporation/
public sector undertaking (which is a party to the contract), acting
as an arbitrator. Section 11(8) of the Act requires the Chief Justice B
or his designate, in appointing an arbitrator, to have due regard to:
"I I. (8)(a) any qualifications required of the arbitrator by the
agreement of the parties; and
(b) other considerations as are likely to secure the appointment
of an independent and impartial arbitrator." c
31. Section 12(1) requires an arbitrator, when approached in
connection with his possible appointment, to disclose in writing
any circumstances likely to give rise to justifiable doubts as to his
independence or impartiality. Section 12(3) enables the arbitrator
being challenged if D
(i) the circumstances give rise to justifiable doubts as to his
independence or impartiality, or
(ii) he does not possess the qualifications agreed to by the
parties.
E
32. Section 18 requires the arbitrator to treat the parties with
equality (that is to say without bias) and give each party full
opportunity lo present his case. Nothing in Sections II, 12, 18 or
other provisions of the Act suggests that any provision in an
arbitration agreement, naming the arbitrator will be invalid if such
named arbitrator is an employee of one of the parties to the F
arbitration agreement."
18. In the same decision, this Cowt in paragraphs 34 and 35 dealt
with 'justifiable apprehension about the independence or impartiality" of
an employee arbitrator in following terms:-
G
"34. The fact that the named arbitrator is an employee of one of
the parties is not ipso facto a ground to raise a presumption of
bias or partiality or lack of independence on his part. There can
however be a justifiable apprehension about the independence or
impa11iality of an employee arbitrator, if such person was the
H
514 SUPREME COURT REPORTS [2017] l I S.C.R.
A controlling or dealing authority in regard to the subject contract or
if he is a direct subordinate (as contrasted from an officer of an
inferior rank in some other Department) to the officer whose
decision is the subject-matter of the dispute.
35. Where however the named arbitrator though a senior officer
B of the Government/statutory body/government company, had
nothing to do with the execution of the subject contract, there can
be no justification for anyone doubting his independence or
impartiality, in the absence of any specific evidence. Therefore,
senior officer(s) (usually Heads of Department or equivalent) of
a Government/statutory corporation/public sector undertaking, not
c associated with the contract, are considered to be independent
and impartial and arc not barred from functioning as arbitrators
merely because their employer is a party to the contract."
19. Section 12(1) as it then stood before the Amendment Act
came into force, obliged the person approached in connection with possible
D appointment as an arbitrator. to disclose in writing any circumstances
likely to give rise to justifiable doubts as to his independence or
impartiality. In the present case, the Arbitrator undoubtedly is an employee
of the Appellant but so long as there is no justifiable apprehension about
his independence or impartiality, the appointment could not be rendered
E invalid and unenforceable. As held in the case of llldian Oil
Corporation Ltd, (supra) mere fact that the arbitrator is an employee is
not ipso facto a ground to raise any presumption of bias or partiality. It
is not the case that there had not been any fair and correct disclosure.
All that the Respondent alleged in its petition seeking termination of the
mandate of the Arbitrator was," ..... he has himselfin his official capacity
F in the Respondent-Company dealt with contracts ofnature similar to the
contract works in question .... " The Respondent, while relying on the
provisions of the Amendment Act had also submitted, " .... allegedly
appointed individual is the Chief Executive Officer of the Respondent
herein, who on account of such position also has lhe conlrolling influence
G over the Respondent-Company". At the same time, the High Court
observed in Paragraph 13 of the j udgmcnt under appeal that the Arbitrator
was not the Engineer In-charge or the day-to-day In-charge of the work
and as a matter of fact, the Engineer In-charge was AG M (CCD-
Township) who had a team ofother Engineers working under him and
that AGM(CCD-Township) reported to AGM (ME-CCD) who in
H
ARAVALI POWER COMPANY PVT. LTD. v. MIS. ERA INFRA 515
ENGINEERING LTD. [UDAY UMESH LAUT, J.]
turn reported to CEO (APCPL) i.e. the Arbitrator. The facts on record A
and the hierarchy as mentioned do not show that the Arbitrator in the
present matter was either the Dealing Authority in regard to the Contract
or was directly sub-ordinate to the Officer(s) whose decision is the subject
matter of dispute. In fact, the decision, which could be subject matter
of dispute, was that of his subordinates. He may have dealt with contracts
B
of nature similar to the contract works in question but that by itself does
not render the appointment invalid. Since there is nothing on record which
could raise justifiable doubts about the independence or impartiality of
the named Arbitrator, in the light of the observations of this Court in
India11 Oil Corporatio11 Ltd. (supra) the appointment of the Arbitrator
could not in any way be termed to be illegal ornnenforceable. c
20. However, number of decisions of this Court were relied upon
by the Respondent in support of its submission that interference in the
present case was called for. We may therefore deal with those decisions.
A. In Northern Railway Administration, Ministry of Railway,
New Delhi v. Patel E11gineeri11g Company Ltd'., a Bench consisting D
of three learned Judges of this Court was called upon to consider the
apparent conflict between two Judgments of this Court in "A CE Pipeline
Contra,:ts (P) Ltd. v. Bharat Petroleum Corp11. Ltd. 3 and Union of
India v. Bharat Battery Manufacturing co. (P) Ltd.'". The
·submission made on behalfof the appellant therein as quoted in paragraph E .
5 was:-
"5 .............. .It is, therefore, submitted that before the alternative
is resorted to, agreed procedure has to be exhausted. The
agreement has to be given effect and the contract has to be adhered
to as closely as possible. Corrective measures have to be taken F
first and the Court is the last resort."
The d,iscussion in paragraphs 12, 13 and 14 of the decision wa,s as
under:-
"12. A bare reading of the scheme of Section 11 shows that the
emphasis is on the terms of the agreement being adhered to ancV G
or given effect as closely as possible. In other words, the Court
may ask to do what has not been done. The Court must first
osec 240
2 (2008) 1
' (2001) s sec 304
• (2007J 1 sec 684 H
516 SUPREME COURT REPORTS [2017] l I S.C.R
A ensure that the remedies provided for are exhausted. It is true as
contended by Mr. Desai, that it is not mandatory for the Chief
Justice or any person or institution designated by him to appoint
the named arbitrator or arbitrators. But at the same time, due
regard has to be given to the qualifications required by the
agreement and other considerations.
B
13. The expression "due regard" means that proper attention to
several circumstances have been focused. The expression
"necessary" as a general rule can be broadly stated to be those
things which are reasonably required to be done or legally ancillary
to the accomplishment of the intended act. Necessary measures
c can be stated to be the reasonable steps required to he taken.
14. In all these cases at hand the High Court does not appear to
have focused on the requirement to have due regard to the
qualifications required by the agreement or other considerations
necessary to secure the appointment of an independent and
D impartial arbitrator. It needs no reiteration that appointment of the
arbitrator or arbitrators named in the arbitration agreement is not
a must, but while making the appointment the twin requirements
of sub-section (8) of Section 11 have to be kept in view, considered
and taken into account. If it is not done, the appointment becomes
E vulnerable. In the circumstances, we set aside the appointment
made in each case, remit the matters to the High Court to make
fresh appointments keeping in view the parameters indicated
above.''
B. In U11io11 of India v. Singh Builders Syndicate-', an arbitral
F tribunal consisting of three serving Ofiicers was constituted but no
proceedings wcrn actually undertaken. Thereafter, on an application
preferred under Section 11, the High Court appointed a Former Judge of
that High Court as the sole arbitrator. Paragraph 11 of the decision set
out the question which arose for consideration and Paragraph 14 was as
under:-
G
" 14. It was further held in Northern Railwtt.I' case that the Chief
Justice or his designate should first ensure that the remedies
provided under the arbitration agreement are exhausted, but at
the same time also ensure that the twin requirements of sub-section
't2009l 4 sec s2J
H
ARAVALI POWER COMPANY PVT. LTD. v. M/S. ERA INFRA 517
ENGINEERING LTD. [UDAY UMESH LAUT, J.]
(8) of Section 11 of the Act are kept in view. This would mean A
that invariably the court should first appoint the arbitrators in the
manner provided for in the arbitration agreement. But where the
independence and impartiality of the arbitrator(s) appointed/
nominated in terms of the arbitration agreement is in doubt, or
where the Arbitral Tribunal appointed in the manner provided in
B
the arbitration agreement has not functioned and it becomes
necessary to make fresh appointment, the Chief Justice or his
designate is not powerless to make appropriate alternative
arrangements to give effect to the provision for arbitration."
C. After dealing with cases on the point including Northem
Railway Administration (supra), this Court in I11di1111 Oil Corporation c
Ltd. (supra) summed up the legal position as under:-
45. Ifthe arbitration agreement provides for arbitration by a named
arbitrator, the courts should normally give effect to the provisions
of the arbitration agreement. But as clarified by Nor/hem Railway
Ad11111., where there is material to create a reasonable D
apprehension that the person mentioned in the arbitration
agreement as the arbitrator is not likely to act independently or
impartially, or if the named person is not available. then the Chief
Justice or his designate may, after recording reasons for not
following the agreed procedure of referring the dispute to the E
named arbitrator, appoint an independent arbitrator in accordance
with Section 11(8) of the Act. In other word~, referring the disputes
to the named arbitrator shall be the rule. The Chief Justice or his
designate will have to merely reiterate the arbitration agreement
by referring the parties to the named arbitrator or named Arbitral
Tribunal. Ignoring the named arbitrator/ Arbitral Tribunal and F
nominating an independent arbitrator shall be the exception to the
rule, to be res011ed for valid reasons.
48. In the light of the above discussion, the scope of Section 11 of
the Act containing the scheme of appointment of arbitrators may
be summarised thus: G
(i) Where the agreement provides for arbitration with three
arbitrators (each party to appoint one arbitrator and the two
appointed arbitrators to appoint a third arbitrator), in the event of
a party failing to appoint an arbitrator within 30 days from the
H
518 SUPREME COURT REPORTS [2017] l 1 S.C.R.
A receipt of a re4uest from the other party (or the two nominated
arbitrators failing to agree on the third arbitrator within 30 days
from the date of the appointment), the ChiefJustice or his designate
will exercise power under sub-section (4) of Section l 1 of the
Act.
B (ii) Where the agreement provides for arbitration by a sole
arbitrator and the parties have not agreed upon any appointment
procedure, the ChiefJustice or his designate will exercise power
under sub-section (5) of Section 11. if the parties fail to agree on
the arbitration within thirty days from the receipt of a request by
a party from the other party.
c
(iii) Where the arbitration agreement specifies the appointment
procedure, then irrespective of whether the arbitration is by a
sole arbitrator or by a three-member Tribunal, the Chief Justice
or his designate will exercise power under sub-section (6) of
Section 11, if a party fails to act as required under the agreed
D procedure (or the parties or the two appointed arbitrators fail to
reach an agreement expected of them under the agreed procedure
or any person/institution fails to perform any function entrusted to
him/it under that procedure).
(iv) While failure of the other party to act within 30 days will
E furnish a cause of action to the party seeking arbitration to approach
the Chief Justice or his designate in cases falling under sub-sections
(4) and (5), such a time-bound re4uiremcnt is not found in sub-
section (6) of Section l l. The failure to act as per the agreed
procedure within the time-limit prescribed by the arbitration
F agreement, or in the absence of any prescribed time-limit, within
a reasonable time, will enable the aggrieved party to fik a petition
under Section l 1(6) of the Act.
( v) Where the appointment procedure has been agreed between
the parties, but the cause of action for invoking the jurisdiction of
G the Chief Justice or his designate tmder clauses(<,,,,\) or (c) of
sub-section ( 6) has not arisen, then the question of the Chief J usticc
or his designate exercising power under sub-section (6) does not
arise. The condition precedent for approaching the Chief Justice
or his designate for taking necessary measures under sub-section
(6) is that
H
ARAVALI POWER COMPANY PVT. LTD. v. M/S. ERA INFRA 519
ENGINEERING LTD. [UDAY UMESH LAUT, J.]
(i) a party failing to act as required under the agreed appointment A
procedure; or
(ii) the parties (or the two appointed arbitrators) failing to reach
an agreement expected of them under the agreed appointment
procedure; or
(iii) a person/institution who has been entrusted with any function B
under the agreed appointment procedure, failing to perform such
function.
(vi) The Chief Justice or his designate while exercising power
under sub-section (6) of Section 11 shall endeavour to give effect
to the appointment procedure prescribed in the arbitration clause. c
(vii) If circumstances exist, giving rise to justifiable doubts as to
the independence and impartiality of the person nominated, or if
other circumstances warrant appointment of an independent
arbitrator by ignoring th.c procedure prescribed, the ChiefJustice
or his designate may, for reasons to be recorded ignore the D
designated arbitrator and appoint someone else."
Thus, as laid down in sub-para (v) of para 48, unless the cause of
action for invokingjurisdiction under Clauses (a), (b) or (c) of sub-section
( 6) of Section 11 of 1996 Act arises, there is no question of the Chief
Justice or his designate exercising power under sub-section ( 6) of Section E
11.
D. In Dene/ (Proprietary) Limited v. Bharat Electronics
Limited and Another6, though the arbitration agreement provided that
all disputes be "referred to the Managing Director or his nominee for
arbitration, this Court appointed retired Judge of this Court as the sole F
arbitrator. The reason as is clear from paras l 9 to 21 of the decision
was; while invoking arbitration the appellant therein had requested the
respond~nt for an appointment of a mutually agreed independent arbitrator
but the respondent had plainly refused to refer the disputes to arbitration.
Para 20 of the decision is ;10tewo1thy:- ·
G
"20. In Datar Switchgears Ltd. v. Tata Fi11ance Ltd. 7 this Court
while considerin_g the powers of the Court to appoint an arbitrator
under Section 8 of the Arbitration Act, 1940, cited the decision of
' (2010) 6sec 394
7
(2000) 8 SCC.151
H
520 SUPREME COURT REPORTS [2017 J 11 S. C.R.
A this Court in B/111pinder Si11gh Bi11dra v. Union of /11dia 8• It
was held in that case that:
"3. It is settled law that court cannot interpose and interdict
the appointment of an arbitrator. whom the parties have chosen
under the terms of the contract unless legal misconduct of the
B arbitrator. fraud. disqualification, crc. is pleaded and proved. It
is not in the power of the party at his own will or pleasure to
revoke the authority of the arbitrator appointed with his consent.
There must be just and sufficient cause for revocation."
The said principle has to abide in the normal course."
c E. Similarly, in Dene/ (Proprietary) Limited v. Ministry of
Defence'. the relevant clause provided for sole arbitration of the Director
General, Ordnance factory, Government of India or a Government
Servant appointed by him. It was observed that since no arbitrator was
appointed in terms of the governing clause within the stipulated period
the respondent had forfeited the right to make an appointment of an
D
arbitrator. Paragraphs 21 and 24 of the decision were:-
"2 l. It is true that in normal circumstances while exercising
jurisdiction under Section 11 (6), the Court would adhere to the
terms of the agreement as closely as possible. But if the
circumstances warrant. the Chief Justice or the nominee of the
E Chief Justice is not debarred from appointing an independent
arbitrator other than the named arbitrator.
24. It nrnst also be remembered that even while exercising the
jurisdiction under Section l 1(6), the Court is required to have due
regard to the provisions contained in Section 11(8) of the Act.
f The aforesaid section provides that apart from ensuring that the
arbitrator possesses the necessary qualifications required of the
arbitrator by the agreement of the parties. the Court shall have
due regard to other considerations as arc likely to ensure the
appointment of an independent and impartial arbitrator. Keeping
in view the aforesaid provision, this Court in Indian Oil Corp11.
G
Ltd. whilst emphasizing that normally the Court shall make the
appointment in terms of the agreed procedure, has observed that
the Chief Justice or his designate may deviate from the same
after recording reasons for the same ........ "
• t t 995 J 5 sec 329
H '(2012) 2 sec 759
ARAVALI POWER COMPANY PVT. LTD. v. MIS. ERA INFRA 521
ENGINEERING LTD. [UDAY UMESH LAUT, J.]
F. In U11io11 of Indict a11d Others v. Uttar Pradesh State Bridge A
Corporatio11 Limited", an arbitral tribunal consisting of three Gazetted
Railway Officers was constituted in the year 2007 and despite four years
having passed. the matter was not getting concluded. In the
circumstances, while accepting the petition for setting aside the mandate
of the tribunal the High Court had appointed a retired Chief Justice as
B
the sole arbitrator. While considering the grievance that such appointment
was beyond the concerned arbitration clause, this Court observed:-
"12. As is clear from the reading of Section 14, when there is a
failure on the part of the Arbitral Tribunal to act and it is unable to
perform its function either de jurc or de facto, it is open to a party
to the arbitration proceedings to approach the cou1t to decide on c
the termination of the mandate. Section 15 provides some more
contingencies when mandate of an arbitrator can get terminated.
In the present case. the High Court has come to a categorical
finding that theArbitral Tribunal failed to perform its function. and
rightly so. It is a clear case of inability on the part of the members D
of the Tribunal to proceed in the matter as the matter lingered on
for almost four years, without any rhyme or justifiable reasons.
The members did not mend their ways even when another life
was given by granting three months to them. Virtually a peremptory
order was passed by the High Court, but the Arbitral Tribunal
remained unaffected and took the directions of the High Court in E
a cavalier manner. Therefore, the order of the High Court
terminating the mandate of the Arbitral Tribunal is flawless. This
aspect of the impugned order is not even questioned by the
appellant at the time of hearing of the present appeal. However,
the contention of the appellant is that even if it was so. as per the F
provisions of Section 15 of the Act, substitute arbitrators should
have been appointed "according to the rules that were applicable
to the appointment of the arbitrator being replaced". On this basis,
it was the submission of Mr. Mehta, learned ASG, that the High
Court should have resorted to the provision contained in Clause
64 ofGCC. G
13. No doubt, ordinarily that would be the position. The moot
question, however, is as to whether such a course of action has to
be necessarily adopted by the High Court in all cases, while dealing
"(2015)2SCC52
H
522 SUPREME COURT REPORTS (2017] I l S.C.R.
A with an application under Section I I of the Act or is there room
for play in the joints and the High Court is not divested of exercising
discretion under some circumstances'! Jf yes, what are those
circumstances? It is this very aspect which was specifically dealt
with by this Court in Tripple E11gg. Works." Taking note of
various judgments, the Court pointed out that the notion that the
B
High Court was bound to appoint the arbitrator as per the contract
between the parties has seen a significant erosion in recent past.
In paras 6 and 7 of the said decision. those judgments wherein
departure from the aforesaid "classical notion" has been made
arc taken note of.. ................. "
c G. In Voestalpine Schie11e11 GMBH v. Delhi Metro Rail
Corporatio11 Limited", the relevant clause contemplated that the
disputes be settled by three arbitrators from and out of a list of five
engineers supplied by the respondent therein. The appellant had invoked
arbitration on 14.06.2016 i.e. after the amending A ct. When the list of
D five persons comprising of serving officers was supplied by the
respondents. an objection was taken that such procedure would lead to
appointment of"illegal persons" in view of Section 12(5) read with Clause
I of Schedule 7 of the Act. This Court considered that Section 12 of the
Act was amended pursuant to the recommendations by the Law
Commission which specifically dealt with the issue of "neutrality of
E arbitrators", and observed that if the arbitration clause finds foul with
the amended pro:visions, the appointment of the Arbitrator even if
apparently in conformity with the arbitration clause in the agreement,
would be illegal and thus the Coutt would be within its powers to appoint
such arbitrator(s) as may be permissible. Paragraph 18 sums up this
F aspect of the matter:-
"18. Keeping in mind the afore-quoted recommendation of the
Law Commission. with which spirit, Section 12 has been amended
by the Amendment Act, 2015, it is manifest that the main purpose
for amending the provision was to provide for neutrality of
G arbitrators. In order to achieve this, sub-section (5) of Section 12
lays down that notwithstanding any prior agreement to the contrary,
any person whose relationship with the parties or counsel or the
subject-matter of the dispute falls under any of the categories
specified in the Seventh Schedule, he shall be ineligible to be
" (2014) 9 sec 288
H "(2017)4 SCC665
ARAVALI POWER COMPANY PVT. LTD. v. MIS. ERA INFRA 523
ENGIN.EERING LTD. [UDAY UMESH LAUT, J.]
appointed as an arbitrator. In such an eventuality i.e. when the A
arbitration clause finds foul with the amended provisions extracted
above, the appointment of an arbitrator would be beyond pale of
the arbitration agreement, empowering the court to appoint such
arbitrator(s) as may be permissible. That would be the effect of
non obstante clause contained in sub-section (5) of Section 12
B
and the other party cannot insist on appointment of the arbitrator
in terms of the arbitration agreement."
21. Except the decision of this Court in Voestalpine Sc/1iene11
GMBH (supra) referred to above, all other decisions arose out of matters
where invocation of arbitration was before the Amendment Act came
into force. Voestalpine Scl1ie11en GMBH (supra) was a case where c
the invocation was on 14.6.2016 i.e. after the Amendment Act and the
observations in Para 18 clearly show that since "the arbitration clause
finds foul with the amended provisions", the Court was empowered to
appoint such arbitrator(s) as may be permissible. The ineligibility of the
arbitrator was found in the context of amended Section 12 read with D
Seventh Schedule (which was brought in by Amendment Act) in a matter
.where invocation for arbitration was after the Amendment Act had come
into force. It is thus clear that in pre-amendment cases, the law laid
down in Northern Railway Ad111i11istratio11 (Supra), as followed in all
the aforesaid cases, must be applied, in that the terms of the agreement
ought to be adhered to and/or given effect to as closely as possible. E
Further, the jurisdiction of the Court under Section 11 of 1996 Act would
arise only if the conditions specified in clauses (a), (b) and (c) arc satisfied.
The cases referred to.above show that once the conditions for exercise
of jurisdiction under Section 11(6) were satisfied. in the exercise of
consequential power under Section 11 (8), the Court had on certain F
occasions gone beyond the scope of the concerned arbitration clauses
and appointed independent arbitrators. What is clear is, for exercise of
such power under Section 11(8), the case must first be made out for
exercise ofjurisdiction under Section 11 ( 6).
22. The principles which emerge from the decisions referred to G
above are:-
A. ln cases governed by .1996 Act as it stood before the
Amendment Act came into forcc:-
(i) The fact that the named arbitrator is an employee of one of
H
524 SUPREME COURT REPORTS [2017] I l S.C.R.
A the parties is not ipso facto u ground to raise a presumption uf
bias or partiality or lack of independence on his part. There can
however be a justifiable apprehension about the independence or
impartiality of an employee arbitrator, if such person was the
controlling or dealing authority in regard to the subject comract or
if he is a direct subordinate to the officer whose decision is the
B
subject-matter of the dispute.
(ii) unless the cause ofaction for invokingjurisdiction WlderClauses
(a), (b) or (c) of sub-section (6) of Section 11 of 1996 Act arises,
there is no question of the Chief Justice or his designate exercising
power under sub-section (6) of Section 11.
c
(iii) The Chief Justice or his designate while exercising power
under sub-section (6) of Section 11 shalkndeavour to give effect
to the appointment procedure prescribed in the arbitration clause.
(iv) While exercising such power under sub section (6) of Section
D 11, If circumstances exist, giving rise to justifiable doubts as to the
independence und impat1iality of the person nominated, or if other
circumstances warrant appointment of an independent arbitrator
by ignoring the procedure prescribed, the Chief Justice or his
designate may, for reasons to be recorded ignore the designated
arbitrator and appoint someone else.
E
B. fn cases governed by 1996 Act a lier the Amendment Act has
come into force:-
If the arbitration clause finds foul with the amended provisions,
the appointment of the Arbitrator even if apparently in conformity with
the arbitration clause in the agreement. would be illegal and thus the
F
Court would be within its powers to appoint such arbitrator(s) as may be
pem1issible.
23. The observations of the High Court in paragraphs 37-38 as
quoted above show that the exercise was undertaken by the High Court,
"in order to make neutrality or to avoid doubt in the mind of the petitioner"
G
and ensure thatjustiec must not only be done and must also be seen to
be done. In effect, the High Cou11 applied principles of neutrality and
impartiality which have been expanded by way of Amendment Act, even
when no cause of action for exercise of power Wlder Section 11 (6) had
arisen. The procedure as laid down in unamended Section 12 mandated
H
ARAVALI POWER COMPANY PVT. LTD. v. MIS. ERA INFRA 525
ENGINEERING LTD. [UDAY UMESH LALIT, J.]
disclosure of circumstances likely to give rise to justifiable doubts as to A
independence and impartiality of the arbitrator. It is not the case of the
Respondent that the provisions of Section 12 in unamended form stood
violated on any count. In any case the provision contemplated clear and
precise procedure under which the arbitrator could be challenged and
the objections in that behalf under Section l 3 could be raised within
B
prescribed time and in accordance with the procedure detailed therein.
The record shows that no such challenge was raised within the time and
in terms of the procedure prescribed. As a matter of fact, the Respondent
had participated in the arbitration and by its communication dated
04.12.20 l 5, had sought extension of time to file its statement of claim.
24. In the circumstances, the High Court was clearly in error in c
exercisingjurisdiction in the present case and it ought not to have interfered
with the process and progress of arbitration. We therefore accept the
challenge raised by the Appellant and reject that raised by the Respondent.
Consequently, appeals arising out of Special Leave Petition (Civil)
Nos.25206-25207of2016 arc allo\vcd while those arising from Special D
Leave Petition (Civil) Nos.503-504 of 2017 stand dismissed. The
arbitration, in pursuance of the appointment of the Arbitrator on
19.08.2015, shall proceed in accordance with law.
25. The appeals arc disposed of in aforesaid terms, without any
order as to costs. E
Divya Pandey Appeals disposed ot:
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