Supreme Court of India
TRF LTD.versusENERGO ENGINEERING PROJECTS LTD.
- Citation
- 2017 INSC 577
- Decided
- 3 July 2017
- Disposal
- Appeal(s) allowed
- Bench
- DIPAK MISRA
Holding
A person rendered ineligible under Section 12(5) of the Arbitration and Conciliation Act, 1996 cannot nominate another arbitrator, and any such appointment is void.
Summary
The dispute arose from a purchase order between TRF Ltd (appellant) and Energo Engineering Projects Ltd (respondent) where the contract stipulated that any dispute be referred to the Managing Director of the buyer or his nominee as sole arbitrator. After the Arbitration and Conciliation (Amendment) Act, 2015 introduced Section 12(5) making a person falling under the Seventh Schedule ineligible to act as arbitrator, the Managing Director became statutorily disqualified. The appellant argued that a disqualified arbitrator could not nominate a substitute, while the respondent contended that the right to nominate remained. The Supreme Court held that once a person is ineligible under Section 12(5), he cannot nominate another arbitrator, and the High Court's appointment was therefore invalid. The Court set aside the appointment, remitted the matter to the High Court for fresh consideration of a suitable arbitrator, and allowed the appeals.
Issues considered
- The effect of Section 12(5) of the Arbitration and Conciliation Act, 1996 (as amended) on the power of a statutorily ineligible person to nominate an arbitrator.
- Whether a challenge to the appointment of an arbitrator on the ground of statutory disqualification can be made under Section 11(6) of the Act.
- Whether the parties can waive the disqualification provision of Section 12(5) under the proviso.
- The jurisdiction of the designated Judge/Chief Justice to examine the qualification of the arbitrator at the preliminary stage.
Legislation cited
- Arbitration and Conciliation Act, 1996s. 11(6), s. 11(8), s. 12(5), s. 13, s. 15, s. 2(1)(e), s. 34, s. 42, s. 8, s. 9
Subjects
ArbitrationAppointment of arbitratorStatutory disqualificationSection 12(5)Seventh ScheduleSection 11(6)Waiver of disqualificationArbitration clauseContractual nomination
Judgment
[2017] 7 S.C.R. 409
TRFLTD. A
v.
ENERGO ENGINEERING PROJECTS LTD.
(Civil Appeal No. 5306 of2017)
JULY 03,2017 B
(DIPAK MISRA, A. M. KHANWILKAR AND
MOHAN M. SHANTANAGOUDAR, JJ.I
Arbitration and Conciliation Act, 1996-s.12(5)-Appointment
of arbitrator by nomination - Any person falling under any of
categories specified in the seventh schedule shall be ineligible to C
be appointed as arbitrator - Such person who is statutorily ineligible
cannot nominate a person - In the instant case, since the Managing
Director of the respondent becomes ineligible to act as an arbitrator
subsequent to the amendment in the Act, he could also not have
nominated any other person as arbitrator. D
'
. Allowing the appeals and remitting the matters to the High
Court, the Court
HELD: 1. Sub-section (5) of Section 12 categorically lays
down that if a person whose relationship with the parties or the
counsel or the subject matter of dispute falls under any of the E
categories specified in the Seventh Schedule shall be ineligible
to be appointed as an arbitrator. There is a qualifier which
indicates that parties may, subsequent to the disputes arisen
between them, waive the applicability by express agreement in
writing. The qualifier finds place in the proviso appended to sub-
F
section (5) of Section 12. There are fundamentally three
components, namely, the parties can waive the applicability of
the sub-section; the said waiver can only take place subsequent
to dispute having arisen between the parties; and such waiver
must be by an express agreement in writing. The Seventh
Schedule has three parts, namely, (i) arbitrator's relationship with G
the parties or counsel; (ii) relationship of the arbitrator to the
dispute; and (iii) arbitrator's direct or indirect interest in the
dispute. It is not in dispute that the amended provision that has
introduced sub-section (5) to Section 12, had enumerated the
disqualification in the Seventh Schedule. The agreement had
H
409
410 SUPREME COURT REPORTS [2017] 7 S.C.R.
A been entered into before the amendment came into force. The
procedure for appointment was, thus, agreed upon. It was
observed by the designated Judge that the amending provision
does not take away the right of a party to nominate a sole arbitrator,
otherwise the legislature could have amended other provisions.
He also observed that the grounds including the objections under
B
the Fifth and the Seventh Schedules of the amended Act can be
raised before the Arbitral Tribunal and further when the
nominated arbitrator has made the disclosure as required under
the Sixth Schedule to the Act, there was no justification for
interference. That apart, he also held in his conclusion that besides
C the stipulation of the agreement governing the parties, the Court
has decided to appoint the arbitrator as the sole arbitrator to
decide the dispute between the parties. [Paras 10, 12, 13, 17J(421-
D-G; 423-A-DJ
2. Clause (c) states that all disputes which cannot be settled
D by mutual negotiation shall be referred to and determined by
arbitration as per the Act, as amended. Clause (c) is independent
of Clause (d). Clause (d) provides that unless otherwise
provided, any dispute or difference between the parties in
connection with the agreement shall be referred to the sole
arbitration of the Managing Director or his nominee. There is
E no quarrel that by virtue of Section 12(5) of the Act, if any person
who falls under any of the categories specified in the Seventh
Schedule shall be ineligible to be appointed as the arbitrator. If
there is a clause requiring the parties to nominate their respective
arbitrator, their authority to nominate cannot be questioned.
F What really in that circumstance can be called in question is the
procedural compliance and the eligibility of their arbitrator
depending upon the norms provided under the Act and the
Schedules appended thereto. But, here is a case where the
Managing Director is the "named sole arbitrator" and he has
also been conferred with the power to nominate one who can be
G the arbitrator in his place. Once the arbitrator has become
ineligible by operation of law, he cannot nominate another as an
arbitrator. The arbitrator becomes ineligible as per prescription
contained in Section 12(5) of the Act. It is inconceivable in law
that person who is statutorily ineligible can nominate a person.
H
TRF LTD. v. ENERGO ENGINEERING PROJECTS LTD. 411
[Paras 52, 53, 57][438-E-G; 439-C-D; 441-B) A
3. Another facet needs to be addressed. The Designated
Judge in a cryptic manner has ruled after noting that the petitioner
therein had no reservation for nomination of the nominated
arbitrator and further taking note of the fact that there has been
a disclosure, that he has exercised the power under Section 11(6) B
of the Act. That is not the right procedure to be adopted. The
order appointing the arbitrator is set aside. However, as Clause
(c) is independent of Clause (d), the arbitration clause survives
and hence, the Court can appoint an arbitrator taking into
consideration all the aspects. [Para 58)[441-D-EJ
c
Arasmeta Captive Power Company Private Limited and
another v. Lafarge India Private Limited (2013) 15 SCC
414: [2013] 17 SCR 496; Chiaro Controls India Private
Limited v. Severn Trent Water Purification Inc. (2013) 1
SCC 641 : [2012) 13 SCR 402 - relied on.
D
Antrix Corporation Limited v. Devas Multimedia Private
Limited (2014) 11 SCC 560 : [2013) 6 SCR 453 -
distinguished.
State of West Bengal v. Associated Contractors (2015)
1 SCC 32 : [2014) 10 SCR 426 - held inapplicable. E
Chairman, Indore Vikas Pradhikaran v. Pure Industrial
Coke & Chemicals Ltd. & others (2007) 8 SCC 705 :
[2007) 6 SCR 799; Firm of Pratapchand Nopaji v. Firm
of Kotrike Venkata Setty & Sons and others (1975) 2
SCC 208 : [1975) 3 SCR 1; Walter Bau AG, Legal
F
Successor, of the Original Contractor, Dyckerhojf and
Widmann A.G v. Municipal Corporation of Greater
Mumbai (2015) 3 SCC 800 : [2015) 2 SCR 37; Northern
Railway Administration, Ministry of Railways, New
Delhi v. Patel Engineering Company Limited (2008) 10
SCC 240: [2008) 12 SCR 216; Datar Switchgears Ltd. G
v. Tata Finance Ltd. and another (2000) 8 SCC 151;
Naginbhai C. Patel v. Union of India (1999) 2 Born
CR 189 (Born); B. W.L. Ltd. v. MTNL (2000) 2 Arb LR
190; Sharma & Sons v. Engineer-in-Chief. Army
Headquarters, New Delhi (2000) 2 Arb LR 31 (AP);
H
412 SUPREME COURT REPORTS [2017] 7 S.C.R.
A Newton Engineering and Chemicals Limited v. Indian
Oil Corporation Limited and others (2013) 4 SCC 44;
Deep Trading Company v. Indian Oil Corporation and
others (2013) 4 SCC 35 : [2013) 2 SCR 470; Pun}
Lloyd Ltd. v. Petrone! MHB Ltd. (2006) 2 SCC 638;
Municipal Corpn., Jabalapur and others v. Rajesh
B
Construction Co (2007) 5 SCC 344 : [2007) 5
SCR 137; Pricol Limited v. Johnson Controls
Enterprise Limited (2015) 4 SCC 177; State of
Maharashtra v. Atlanta Limited (2014) 11 SCC 619 :
[2014) 1 SCR 507; SBP & Co. v. Patel Engineering
c Ltd. (2005) 8 sec 618 : [2005) 4 Suppl. SCR 688;
State of Orissa and others v. Commissioner of Land
Records & Settlement, Cuttack and others (1998) 7
SCC 162 : [1998] 1 Suppl. SCR 130; Behari Kun}
Sahkari Awas Samiti v. State of U.P. (1997) 7 SCC 37 :
[1997) 3 Suppl. SCR 460; Roop Chand v. State of
D
Punjab AIR 1963 SC 1503 : [1963) Suppl. SCR 539 -
referred to.
Case Law Reference
[2007) 6 SCR 799 referred to Para6
E [1975) 3 SCR 1 referred to Para 6
[2015) 2 SCR 37 referred to Para 6
[2013) 6 SCR 453 distinguished Para 7
[2014] 10 SCR 426 held inapplicable Para 7
F
[2008) 12 SCR 216 referred to Para 18
(2000) 8 sec 151 referred to · Para 20
(1999) 2 Born CR 189 (Born) referred to Para 21
(2000) 2 Arb LR 190 referred to Para 21
G
(2000) 2 Arb LR 31 (AP) referred to Para 21
(2013) 4 sec 44 referred to Para 23
[2013) 2 SCR 470 referred to Para 25
(2006) 2 sec 638 referred to Para 25
H
TRF LTD. v. ENERGO ENGINEERING PROJECTS LTD. 413
[20071 5 SCR137 referred to Para 30 A
(2015) 4 sec 111 referred to Para 33
[20141 1 SCR 507 referred to Para 37
[20051 4 Suppl. SCR 688 referred to Para 37
[20131 17 SCR 496 relied on Para 42 B
[20121 13 SCR 402 relied on Para 42
[19981 1 Suppl. SCR 130 referred to Para 53
[1997) 3 Suppl. SCR 460 referred to Para 54
[19631 Suppl. SCR 539 referred to Para 54 c
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5306
of2017.
From the Judgment and Order dated 19.04.2016 of the High Court
of Delhi at New Delhi in Arbitration Petition No. 89 of2016 D
WITH
C. A. Nos. 5309, 5311, 5308 and 5307 of2017.
C. A. Sundaram, Sr. Adv., Sumeet Gadodia, Kaushik Poddar,
Gautam Singh, Advs. for the Appellant.
E
Dhruv Dewan, Ms. Reena Choudhary, S. S. Shroff, Advs. for the
Respondent.
The Judgment of the Court was delivered by
DIPAK MISRA, J. 1. In this batch of appeals. by special leave,
the seminal issues that emanate for consideration are; whether the High F
Court, while dealing with the applications under Section 11 (6) of the
Arbitration and Conciliation Act, 1996 (for brevity, "the Act"), is justified
to repel the submissions of the appellants that once the person who was
required to arbitrate upon the disputes arisen under the terms and
conditions of the contract becomes ineligible by operation of law, he G
would not be eligible to nominate a person as an arbitrator, and second,
a plea that pertains to statutory disqualification of the nominated arbitrator
can be raised before the court in application preferred under Section
11(6) of the Act, for such an application is not incompetent. For the
sake of clarity, convenience and apposite appreciation, we shall state
H
414 SUPREME COURT REPORTS [2017] 7 S.C.R.
A the facts from Civil Appeal No. 5306 of2017.
2. The respondent-company is engaged in the business of procuring
bulk material handling equipment for installation in thermal power plants
on behalf of its clients like National Thermal Power Corporation (NTPC)
and Moser Baer, Lanco Projects Ltd., etc. On 1Q1h May, 2014, the
B respondent issued a purchase order to the appellant for the complete
design, manufacturing, supply, transport to site, unloading, storage,
erection, testing, commissioning and performance guarantee testing 6f
various articles including wagon tippler, side arm charger, apron feeder,
etc. To secure the performance under the purchase order, the appellant
had submitted an advance bank guarantee and a performance bank
c guarantee.
3. As the controversy arose with regard to encashment of bank
guarantee, the appellant approached the High Court under Section 9 of
the Act seeking an order of restraint for encashment of the advance
bank guarantee and the performance bank guarantee. As is reflectible
D from the impugned order, the said petitions were pending consideration
when the High Court dealt with this matter. Be that as it may, the
narration of the controversy under Section 9 in the impugned order or
the consequences thereof is not germane to the adjudication of this case.
4. As the facts would unveil, the appellant vide letter dated
E 28.12.2015 invoked the arbitration in terms of Clause 33 of the General
Terms and Conditions of the Purchase Order (GTCPO) seeking reference
of the disputes that had arisen between the parties to an arbitrator. It
was also asserted before the High Court that the appellant had objected
to the procedure for appointment of arbitrator provided under the
F purchase order and accordingly communicated that an arbitrator be
appointed de hors the specific terms of the purchase order. There was
denial of the same by the respondent on the ground that it was contrary
to the binding contractual terms and accordingly it rejected the suggestion
given by the appellant and eventually by letter dated 27.1.2016 nominated
an arbitrator, a former Judge of this Court, as the sole arbitrator in terms
G of Clause 33(d) of the purchase order. It is apt to note here that in
certain cases, a former Chief Justice of a High Court was also appointed
as arbitrator by the Managing Director.
5. After the appointment was made, the appellant preferred an
application under Section 11(5) read with Section 11(6) of the Act for
H
TRF LTD. v. ENERGO ENGINEERING PROJECTS LTD. 415
[DIPAK MISRA, J.]
appointment of an arbitrator under Section 11 (2) of the Act. The said A
foundation was structured on the basis that under Section 12(5) of the
Arbitration and Conciliation (Amendment) Act, 2015 (3 of 2016) read
with the Fifth and the Seventh Schedules to the amended Act, the
Managing Director had become ineligible to act as the arbitrator and as
a natural corollary, he had no power to nominate. The stand put forth by B
the appellant was controverted by the respondent before the High Court
on the ground that the Fifth and the Seventh Schedules lay down the
guidelines and the arbitrator is not covered under the same and even if it
is so, his power to nominate someone to act as an arbitrator is not fettered
or abrogated. The High Court analysed the clauses in the agreement
and opined that the right of one party to a dispute to appoint a sole C
arbitrator prior to the amended Act had been well recognized and the
amended Act does not take away such a right. According to the learned
designated Judge, had the intent of the amended Act been to take away
a party's right to nominate a sole arbitrator, the same would have been
found in the detailed list of ineligibility criteria enumerated under the D
Seventh Schedule to the Act and, therefore, the submission advanced by
the appellant, the petitioner before the High Court, was without any
substance. Additionally, the High Court noted that the learned counsel
for the petitioner before it had clearly stated that it had faith in the
arbitrator but he was raising the issue as a legal one, for a Managing
Director once disqualified, he cannot nominate. That apart, it took note E
of the fact that the learned arbitrator by letter dated 28.1.2016 has
furnished the requisite disclosures under the Sixth Schedule and, therefore,
there were no circumstances which were likely to give rise to justifiable
doubts as to the independence and impartiality. Finally, the designated
Judge directed that besides the stipulation in the purchase order governing
· the parties, the court was inclined to appoint the former Judge as the
F
sole arbitrator to decide the disputes between the parties.
6. Questioning the soundness of the order passed by the High
Court, Mr. Sundaram, learned senior counsel for the appellant has raised
the following contentions:
G
(i) The relevant clause in the agreement relating to appointment of
arbitrator has become void in view of Section 12(5) of the amended
Act, for the Managing Director having statutorily become ineligible,
cannot act as an arbitrator and that acts as a disqualification and in
such a situation to sustain the stand that his nominees have been
H
416 SUPREME COURT REPORTS [2017) 7 S.C.R.
A validly appointed arbitrators would bring in an anomalous situation
which is not countenanced in law.
(ii) Once the owner/employer has been declared disqualified in law,
a nominee by the owner to arbitrate upon is legally unacceptable. In
support of this proposition, reliance has been placed upon Chairma11,
B Indore Vikas Pradhikaran v. Pure l11dustrial Coke & Chemicals
Ltd. & others'.
(iii) The principle embedded in the maxim Qui Facit Per A/ium Facit
Per Se (What one does through another is done by oneself) is attracted
in the instant case. Additionally, if such liberty is granted, it will usher
c in the concept that an action that cannot be done or is outside the
prohibited area can be done illegally by taking means to the
appointment of a nominee. In this regard, the decision in Firm of
Pratapcha11d Nopaji v. Firm of Kotrike Ve11kata Setty & Sons
and others2 has been commended.
D (iv) The status of the nominee does not take away the prohibition of
ineligibility of nomination as the nominator has become ineligible to
arbitrate upon. A legal issue of this nature which goes to the very
root of the appointment of the arbitrator pertaining to his appointment
which is ex facie invalid, cannot be said to be raised before the arbitral
tribunal. For this purpose, inspiration has been drawn from the
E authority in Walter Bau A4 Legal Successor, of the Original
Contractor, Dyckerhoff a11d Widma1111 A.Ci v. M1micipal
Corporation of Greater M umbai3.
7. Mr. Chidambaram, learned senior counsel for the respondent,
assisted by Mr. S.S. Shroff, resisting the aforesaid submissions, raised
F by the learned senior counsel for the appellant, proponed as follows:
(a) The submission to the effect that since the Managing Director
of the respondent has become ineligible to act as an arbitrator subsequent
to the amendment in the Act, he could also not have nominated any
other person as arbitrator is absolutely unsustainable, for the Fifth and
G the Seventh Schedules fundamentally guide in determining whether
circumstances exist which give rise to justifiable doubts as to the
independence and impartiality of the arbitrator. To elaborate, if any
1
(2007) 8 sec 105
2
(1975) 2 sec 208
' (2015) 3 sec 800
H
TRF LTD. v. ENERGO ENGINEERING PROJECTS LTD. 417
[DlPAK MISRA, J.]
person whose relationship with the parties or the counsel or the subject A
matter of dispute falls under any of the categories specified in the Seventh
Schedule, he is ineligible to be appointed as an arbitrator but not otherwise.
(b) The appellants have not been able to substantiate before the
High Court how the appointment of the sole arbitrator falls foul of the
Seventh Schedule and in the absence of that, the appeals, being devoid B
of merit, deserve to be dismissed. As far as language employed in the
Fifth Schedule is concerned, it is also a guide, which indicates existence
of circumstances that give rise to justifiable doubts as to the arbitrator's
independence and impartiality and when such a stand has been abandoned
before the High Court, the impugned order is totally invulnerable.
c
(c) On a careful appreciation of the Fifth and Seventh Schedules
of the amended Act, it is manifest that grounds provided thereunder
clearly pertain to the appointed arbitrator and not relating to the appointing
authority and, therefore, each and every ground/circumstance categorized
under the Fifth and Seventh Schedules is to be reckoned and decided
vis-a-vis the appointed arbitrator alone and not as a general principle. D
(d) There is no warrant for the conclusion that an appointed
arbitrator will automatically stand disqualified merely because the named
arbitrator has become ineligible to become the arbitrator, for he always
has the right to nominate an independent and neutral arbitrator.·
E
( e) The language of the purchase order does not stipulate that the
Managing Director of the respondent will have the right to nominate a
sole arbitrator as long as he is also qualified to act as an arbitrator. The
role to act as an arbitrator and to nominate an arbitrator are in two
independent spheres and hence, the authority to nominate is not curtailed.
F
(f) Challenge to an appointment of arbitrator under Section 13 of
the Act can only be made before the Arbitral Tribunal, for despite
introducing the Fifth, the Sixth and the Seventh Schedules to the amended
Act under Section 12, the Legislature has consciously retained the
challenge procedure under Section 13 of the Act. It is because Sections
13(2) and Section 13(3) of the Act clearly postulate that a challenge to G
the authority of arbitrator has to be made before the arbitral tribunal and
the said procedure cannot be bypassed by ventilating the objection under
Section 11 of the Act. Any objection to be raised under the Fifth Schedule
or the Seventh Schedule of the amended Act has to be raised before the
arbitral tribunal. To bolster the said submission, heavy reliance has been H
418 SUPREME COURT REPORTS [2017] 7 S.C.R.
A placed on Antrix Corporation Limited v. Devas Multimedia Private
Limited4 •
(g) The authority relied on Walter Bau AG (supra) is not a
precedent for the proposition advanced, as it was dealing with a challenge
to an order of a judicial authority and not that ofa court and furthermore
B the said decision has been distinguished in State of West Bengal v.
Associated Contractors5 •
8. To appreciate the contentions raised at the Bar, it is necessary
to refer to the relevant clauses of the GTCPO that deals with the
resolution of dispute. Clause 33 that provides resolution of disputes/
c arbitration reads as follows:
"33. Resolution of dispute/arbitration
a. In case any disagreement or dispute arises between the buyer
and the seller under or in connection with the PO, both shall
make every effort to resolve it amicably by direct informal
D negotiation.
b. lf, even after 30 days from the commencement of such informal
negotiation, seller and the buyer have not been able to resolve
the dispute amicably, either party may require that the dispute
be referred for resolution to the formal mechanism of arbitration.
E
c. All disputes which cannot be settled by mutual negotiation shall
be referred to and determined by arbitration as per the
Arbitration and Conciliation Act, 1996 as amended.
d. Unless otherwise provided, any dispute or difference between
the parties in connection with this agreement shall be referred
F
to sole arbitration of the Managing Director of Buyer or his
nominee. Venue of arbitration shall be Delhi, and the arbitration
shall be conducted in English language.
e. The award of the tribunal shall be final and binding on both;
buyer and seller."
G
9. We have reproduced the entire Clause 33 to appreciate the
dispute resolution mechanism in its proper perspective. Sub-clause (c)
of Clause 33 clearly postulates that if the dispute cannot be settled by
• (2014) 11sec560
' (2015) 1 sec 32
H
TRF LTD. v. ENERGO ENGINEERING PROJECTS LTD. 419
[DlPAK MISRA, J.]
negotiation, it has to be determined under the Act, as amended. Therefore, A
the amended provisions do apply. Sub-clause (d) stipulates that dispute
or reference between the parties in connection with the agreement shall
be referred to sole arbitration of the Managing Director of the buyer or
his nominee. This is the facet of the clause which is required to be
interpreted and appositely dwelt upon. Prior to amendment, Section 12
B
read as follows:
"12. Grounds for challenge.-
( l) 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 c
independence or impartiality.
(2) An arbitrator, from the time of his appointment and throughout
the arbitral proceedings, shall, without delay, disclose to the parties
in writing any circumstances referred to in sub-section ( l) unless
they have already been informed of them by him. D
(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) he does not possess the qualifications agreed to by the parties.
E
(4) A party may challenge an arbitrator appointed by him, or in
whose appointment he has participated, only for reasons of which
he becomes aware after the appointment has been made."
10. Section 13 of the Act dealt with challenge procedure. After
the amendment, Section 12 that deals with the grounds of challenge is as F
follows:
"12. Grounds for challenge.-
(l) When a person is approached in connection with his possible
appointment as an arbitrator, he shall disclose in writing any
circumstances,- G
(a) such as the existence either direct or indirect, of any past or
present relationship with or interest in any of the parties or in
relation to the subject-matter in dispute, which is likely to give
rise to justifiable doubts as to his independence or impartiality;
and H
420 SUPREME COURT REPORTS [2017] 7 S.C.R.
A (b) which are likely to affect his ability to devote sufficient time to
the arbitration and in particular his ability to complete the entire
arbitration within a period of twelve months.
Explanation 1.-The grounds stated in the Fifth Schedule shall
guide in determining whether circumstances exist which give rise
B to justifiable doubts as to the independence or impartiality of an
arbitrator.
Explanation 2.-The disclosure shall be made by such person in
the form specified in the Sixth Schedule.
(2) An arbitrator, from the time of his appointment and throughout
c the arbitral proceedings, shall, without delay, disclose to the parties
in writing any circumstances referred to in sub-section ( 1) 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
D
independence or impartiality, or
(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
E he becomes aware after the appointment has been made.
(5) 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 shall be ineligible to be appointed
F as an arbitrator:
Provided that parties may, subsequent to disputes having arisen
between them, waive the applicability of this sub-section by an
express agreement in writing."
11. We have referred to both the provisions to appreciate the
G change in the fundamental concept of grounds for challenge. The
disclosures to be made by the arbitrator have been made specific and
the disclosures are required to be made in accordance with the Sixth
Schedule to the amended Act. The Sixth Schedule stipulates, apart from
others, the circumstances which are to be disclosed. We think it
H
TRF LTD. v. ENERGO ENGINEERING PROJECTS LTD. 421
[DIPAK MISRA, J.]
appropriate to reproduce the same: A
"CIRCUMSTANCES DISCLOSING ANY PAST OR
PRESENT RELATIONSHIP WITH OR INTEREST IN ANY
OF THE PARTIES OR IN RELATION TO THE SUBJECT-
MATTER IN DISPUTE, WHETHER FINANCIAL,
BUSINESS, PROFESSIONAL OR OTHER KIND, WHICH IS B
LIKELY TO GIVE RISE TO JUSTIFIABLE DOUBTS AS TO
YOUR INDEPENDENCE OR IMPARTIALITY (LIST OUT):
CIRCUMSTANCES WHICH ARE LIKELY TO AFFECT
YOUR ABILITY TO DEVOTE SUFFICIENT TIME TO THE
ARBITRATION AND IN PARTICULAR YOUR ABILITY TO C
FINISH THE ENTIRE ARBITRATION WITHIN TWELVE
MONTHS (LIST OUT)"
12. Sub-section (5) of Section 12, on which immense stress has
been laid by the learned counsel for the appellant, as has been reproduced
above, commences with a non-obstante clause. It categorically lays D
down that if a person whose relationship with the parties or the counsel
or the subject matterof dispute falls under any of the categories specified
in the Seventh Schedule shall be ineligible to be appointed as an arbitrator.
There is a qualifier which indicates that parties may, subsequent to the
disputes arisen between them, waive the applicability by express
agreement in writing. The qualifier finds place in the proviso appended E
to sub-section (5) of Section 12. On a careful scrutiny of the proviso, it
is discernible that there are fundamentally three components, namely,
the parties can waive the applicability of the sub-section; the said waiver
can only take place subsequent to dispute having arisen between the
parties; and such waiver must be by an express agreement in writing. F
13. At this stage, we think it appropriate to refer to the Seventh
Schedule, which finds mention in Section 12(5). The Seventh Schedule
has three parts, namely, (i) arbitrator's relationship with the parties or
counsel; (ii) relationship ofthe arbitrator to the dispute; and (iii) arbitrator's
direct or indirect interest in the dispute. G
14. In the present case, we are concerned with the first part of
the Seventh Schedule. Be it noted, the first part has 14 items. For the
present controversy, the relevant items are item nos. 1, 5 and 12, which
read as follows:
H
422 SUPREME COURT REPORTS [2017] 7 S.C.R.
A "1. The arbitrator is an employee, consultant, advisor or has any
other.past or present business relationship with a party.
xxxx xxxx
5. The arbitrator is a manager, director or part of the management,
or has a similar controlling influence, in an affiliate of one of the
B parties ifthe affiliate is directly involved in the matters in dispute
in the arbitration.
xxxx xxxx
12. The arbitrator is a manager, director or part of the management,
C or has a similar controlling influence in one of the parties."
15. We will be failing in our duty, if we do not refer to some of the
aspects which find mention in the Fifth Schedule. Our attention has been
drawn to item nos. 22 and 24 of the Fifth Schedule. They are as follows:
"22. The arbitrator has within the past three years been appointed
D as arbitrator on two or more occasions by one of the parties or an
affiliate of one of the parties.
xxxxx xxxxx
24. The arbitrator currently serves, or has served within the past
three years, as arbitrator in another arbitration on a related issue
E involving one of the parties or an affiliate of one of the parties."
We have noted this for the sake of completion.
16. What is fundamentally urged, as is noticeable from the
submissions of Mr. Sundaram, learned senior counsel appearing for the
F appellants, is that the learned arbitrator could not have been nominated
by the Managing Director as the said authority has been statutorily
disqualified. The submission of the respondent, per contra, is that the
Managing Director may be disqualified to act as an arbitrator, but he is
not deprived of his right to nominate an arbitrator who has no relationship
with the respondent. Additionally, it is assiduously urged that if the
G appointment is hit by the Fifth Schedule or the Sixth Schedule or the
Seventh Schedule, the same has to be raised before the arbitral tribunal
during the arbitration proceeding but not in an application under
Section 11 (6) of the Act.
17. First we shall address the issue whether the Court can enter
H
TRF LTD. v. ENERGO ENGINEERING PROJECTS LTD. 423
[DIPAK MISRA, J.]
into the arena of controversy at this stage. It is not in dispute that the A
Managing Director, by virtue of the amended provision that has introduced
sub-section (5) to Section 12, had enumerated the disqualification in the
Seventh Schedule. It has to be clarified here that the agreement had
been entered into before the amendment came into force. The procedure
for appointment was, thus, agreed upon. It has been observed by the B
designated Judge that the amending provision does not take away the
right of a party to nominate a sole arbitrator, otherwise the legislature
could have amended other provisions. He has also observed that the
grounds including the objections under the Fifth and the Seventh
Schedules of the amended Act can be raised before the Arbitral Tribunal
and further when the nominated arbitrator has made the disclosure as C
required under the Sixth Schedule to the Act, there was no justification
for interference. That apart, he has also held in his conclusion that
besides the stipulation of the agreement governing the parties, the Court
has decided to appoint the arbitrator as the sole arbitrator to decide the
dispute between the parties.
D
18. In Nortliem Railway Administration, Ministry ofRailways,
New Delhi v. Patel Engineering Company Limitetf', while dealing
with the sub-section (6) of Section 11 and sub-section (8) of Section 11
and appreciating the stipulations in sub-sections (3) and (5), a three-
Judge Bench opined that:
E
"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
can be stated to be the reasonable steps required to be taken." F
19. Being of this view, the Court ruled thatthe High Court had not
focused on the requirement of having due regard to the qualification
required by the agreement or other considerations necessary to secure
appointment of an independent and impartial arbitrator and further ruled
that it needs no reiteration that appointment of an arbitrator or arbitrators G
named in the arbitration agreement is not a must because while making
the appointment, the twin responsibilities of sub-section (8) of Section 11
have to be kept in view, considered and taken into account. The Court
further observed that ifthe same is not done, the appointment becomes
' c2oosi 1o sec 240 H
424 SUPREME COURT REPORTS [2017] 7 S.C.R.
A vulnerable. In the said case, the Court set aside the appointment made
by the High Court and remitted the matter to make fresh appointment
keeping in, view the parameters indicated therein.
20. In Datar Switchgears Ltd. v. Tata Finance Ltd. and
another7 , the appellant questioned the authority of the first respondent
B in appointing an arbitrator after a long lapse of notice period of30 days
on the foundation that the power of appointment should have been
exercised within a reasonable time. It was further contended that
unilateral appointment of arbitrator was not envisaged under the lease
agreement and, therefore, the first respondent should have obtained the
consent of the appellant and the name of the arbitrator should have been
c proposed to the appellant before the appointment. The Court took note
of the fact that the arbitration clause in the lease agreement contemplated
appointment of a sole arbitrator. The Court further took note of the fact
that the appellant therein had not issued any notice to the first respondent
seeking appointment of an arbitrator and it explicated that an application
D under Section 11(6) of the Act can be filed when there is a failure of the
procedure for appointment of arbitrator. Elaborating the said concept,
the Court held:
"6 .... This failure of procedure can arise under different
circumstances. It can be a case where a party who is bound to
E appoint an arbitrator refuses to appoint the arbitrator or where
two appointed arbitrators fail to appoint the third arbitrator. If the
appointment of an arbitrator or any function connected with such
appointment is entrusted to any person or institution and such
person or institution fails to discharge such function, the aggrieved
party can approach the Chief Justice for appointment of an
F arbitrator."
21. After so st_ating, the Court adverted to the issue whether there
was any real failure of the mechanism provided under the lease
agreement. The Court took note of the fact that the respondent had
made the appointment before the appellant had filed the application under
G Section 11 of the Act though the said appointment was made beyond ~O
days. It posed the question whether in a case falling under Section 11 (6)
of the Act, the opposite party cannot appoint an arbitrator after the expiry
of30 days from the date of appointment. Distinguishing the decisions of
1
(2000) s sec 1s 1
H
TRF LTD. v. ENERGO ENGINEERING PROJECTS LTD. 425
[DIPAK MISRA, J.]
Naginbhai C. Patel v. Union of India", B.W.L. Ltd. v. MTNL9 and A
Sharma & Sons v. Engineer-in-Chief; Army Headquarters, New
Delhi 10 , the Court held:
"19. So far as cases falling under Section 11(6) are concerned-
such as the one before us - no time limit has been prescribed
under the Act, whereas a period of 30 days has been prescribed B
under Section 11(4) and Section 11(5) of the Act. In our view,
therefore, so far as Section 11 (6) is concerned, if one party
demands the opposite party to appoint an arbitrator and the opposite
party does not make an appointment within 30 days of the demand,
the right to appointment does not get automatically forfeited after
expiry of 30 days. If the opposite party makes an appointment C
even after 30 days of the demand, but before the first party has
moved the court under Section 11. that would be sufficient. In
other words, in cases arising under Section 11(6), if the opposite
party has not made an appointment within 30 days of demand, the
right to make appointment is not forfeited but continues, but an D
appointment has to be made before the former files application
under Section 11 seeking appointment of an arbitrator. Only then
the right of the opposite party ceases. We do not, therefore, agree
with the observation in the above judgments that if the appointment·
is not made within 30 days of demand, the right to appoint an
arbitrator under Section 11 (6) is forfeited. E
[Emphasis supplied]
20. In the present case the respondent made the appointment
before the appellant filed the application under Section 11 (6) though
it was beyond 30 days from the date of demand. In our view, the F
appointment of the arbitrator by the respondent is valid and it
cannot be said that the right was forfeited after expiry of 30 days
from the date of demand.
21. We need not decide whether for purposes of sub-sections (4)
and (5) of Section 11, which expressly prescribe 30 days, the G
period of30 days is mandatory or not."
And again:
' (1999) 2 Born CR 189 (Born)
' (2000) 2 Arb LR 190
'" (2000) 2 Arb LR 31 (AP) H
426 SUPREME COURT REPORTS [2017] 7 S.C.R.
A "23. When parties have entered into a contract and settled on a
procedure, due importance has to be given to such procedure.
Even though rigor of the doctrine of "freedom of contract" has
been whittled down by various labour and social welfare legislation,
still the court has to respect the terms of the contract entered into
by parties and endeavour to give importance and effect to it. When
B
the party has not disputed the arbitration clause, normally he is
bound by it and obliged to comply with the procedure laid down
under the said clause''.
22. On the aforesaid basis, the Court opined that the first
respondent did not fail to follow the procedure contemplated under the
c agreement in appointing the arbitrator nor did it contravene the provisions
of the arbitration clause. The said conclusion was arrived at as the
appellant therein had really not sent a notice for appointment of arbitrator
as contemplated under Clause 20.9 of the agreement which was the
arbitration clause.
D 23. In Newto11 E11gi11eeri11g a11d Chemicals Limited v. /11dia11
Oil Corporation Limited a11d others 11 , a two-Judge Bench was dealing
with an arbitration clause in the agreement that provided that all disputes
and differences between the parties shall be referred by any aggrieved
party to the contract to the sole arbitration ofE.D. (NR) of the respondent-
E Corporation. The arbitration clause further stipulated that if such E.D.
(NR) was unable or unwilling to act as the sole arbitrator, the matter
shall be referred to the sole arbitration of some other person designated
by E.D. (NR) in his place who was willing to act as sole arbitrator. It
also provided that no person other than E.D. (NR) or the person designated
by the E.D. (NR) should act as an arbitrator. When the disputes arose
F between the parties, the appellant therein wrote to the Corporation for
appointment of E.D. (NR) as the sole arbitrator, as per the arbitration
clause. The Corporation informed the contractor that due to internal
reorganization in the Corporation, the office of the E.D. (NR) had ceased
to exist and since the intention of the parties was to get the dispute
G settled through the arbitration, the Corporation offered to the contractor
the arbitration of the substituted arbitrator, that is, the Director
(Marketing). The Corporation further informed the contractor that ifhe
agreed to the same, it may send a written confirmation giving its consent
to the substitution of the named arbitrator. The contractor informed that
11
c2013) 4 sec 44
H
TRF LTD. v. ENERGO ENGINEERING PROJECTS LTD. 427
[DIPAK MISRA, J.]
he would like to have the arbitration as per the provisions of the Act A
whereby each of the parties would be appointing one arbitrator each.
The Corporation did not agree to the suggestion given by the company
and ultimately appointed Director (Marketing) as the arbitrator. The
contractor, being aggrieved, moved the High Court of Delhi for
appointment of arbitrator under Section 11 (6)(c) of the Act and the learned B
Single Judge dismissed the same and observed that the challenge to the
appointment of the arbitrator may be raised by the contractor before the
arbitral tribunal itself. Interpreting the agreement, this Court held:
"7. Having regard to the express, clear and unequivocal arbitration
clause between the parties that the disputes between them shall
be referred to the sole arbitration of the ED (NR) of the Corporation C
and, if ED (NR) was unable or unwilling to act as the sole arbitrator,
the matter shall be referred to the person designated by such ED
(NR) in his place who was willing to act as sole arbitrator and, if
none of them is able to act as an arbitrator, no other person should
act as arbitrator, the appointment of Director (Marketing) or his D
nominee as a sole arbitrator by the Corporation cannot be
sustained. If the office of ED (NR) ceased to exist in the
Corporation and the parties were unable to reach to any agreed
solution, the arbitration clause did not survive and has to be treated
as having worked its course. According to the arbitration clause,
sole arbitrator would be ED (NR) or his nominee and no one else. E
In the circumstances, it was not open to either of the parties to
unilaterally appoint any arbitrator for resolution of the disputes.
Sections 11 (6)( c), 13 and 15 of the 1996 Act have no application
in the light of the reasons indicated above.
8. In this view of the matter, the impugned order dated 8-11-2006 F
has to be set aside and it is set aside. The appointment of
. Respondent 3 as sole arbitrator to adjudicate the disputes between
the parties is also set aside. The proceedings, if any, carried out
by the arbitrator are declared to be of no legal consequence. It
will be open to the contractor, the appellant to pursue appropriate G
ordinary civil proceedings for redres·sal of its grievance in
accordance with law."
24. The aforesaid decision clearly lays down that it is not open to
either of the parties to unilaterally appoint an arbitrator for resolution of
the disputes in a situation that had arisen in the said case. H
428 SUPREME COURT REPORTS [2017] 7 S.C.R.
A 25. In Deep Trading Company v. Indian Oil Corporation and
others", the three-Judge Bench referred to clause 29 of the agreement,
analysed sub-sections I, 2, 6 and 8 of Section 11 of the Act, referred to
the authorities in Datar Switclzgears (supra) and Putij Lloyd Ltd. v.
Petronet J,IHB Ltd." and came to hold that:
B "19. Ifwe apply the legal position exposited by this Court in Datar
Switchgears to the admitted facts, it will be seen that the
Corporation has forfeited its right to appoint the arbitrator. It is s<i
for the reason that on 9-8-2004, the dealer called upon the
Corporation to appoint the arbitrator in accordance with the terms
of Clause 29 of the agreement but that was not done till the dealer
c had made application under Section 11(6) to the Chief Justice of
the Allahabad High Court for appointment of the arbitrator. The
appointment was made by the Corporation only during the
pendency of the proceedings under Section II (6). Such appointment
by the Corporation after forfeiture of its right is of no consequence
D and has not disentitled the dealer to seek appointment of the
arbitrator by the Chief Justice under Section 11 ( 6); We answer
the above questions accordingly.
20. Section 11(8) does not help the Corporation at all in the fact
situation. Firstly, there is no qualification for the arbitrator prescribed
E in the ai,'Teement. Secondly, to secure the appointment of an
independent and impartial arbitrator, it is rather necessary that
someone other than an officer of the Corporation is appointed as
arbitrator once the Corporation has forfeited its right to appoint
the arbitrator under Clause 29 of the agreement."
F 26. The Court accepted the legal position laid down in Newton
Engineering (supra) and referred to Deep Trading Company (supra)
and opined that as the Corporation had failed to act as required under
the procedure agreed upon and did not make the appointment until the
application was made under Section 11 (6) of the Act, it had forfeited its
right of appointment of an arbitrator. In such a circumstance the Chief
G Justice or his designate ought to have exercised his jurisdiction to appoint
an arbitratorunder Section II ( 6) of the Act. Be it noted, the three-Judge
Bench also expressly stated its full agreement with the legal position
that has been laid down in Datar Switchgears Ltd. (supra)
12
(20!3) 4 sec 35
H "(2006) 2 sec 638
TRF LTD. v. ENERGO ENGINEERING PROJECTS LTD. 429
[DIPAK MISRA, J.]
27. In Deep Trading Company (supra), the three-Judge Bench A
noticed as the Corporation did not agree to any of the names proposed
by the appellant, and accordingly remitted the matter to the High Court
for an appropriate order on the application made under Section 11 ( 6) of
the Act.
28. At this stage, it is necessary to understand the distinction B
between the two authorities, namely, Newton Engineering (supra) and
Deep Trading Company (supra). In Newton Engineering (supra)
the arbitration clause provided that no person other than ED (NR) or a
person designated by the ED (NR) should act as an arbitrator. Though
the Corporation appointed its Director (Marketing) as the sole arbitrator C
yet the same was not accepted by the c.ontractor. On the contrary, it
was assailed before the designated Judge. The Court held that since the
parties were unable to arrive at any agreed solution, the arbitration clause
did not survive and the dealer was left to pursue appropriate ordinary
civil proceedings for redressal of its grievance in accordance with law.
In Deep Trading Company (supra) arbitration clause, as is noticeable, D
laid down that the dispute or difference of any nature whatsoever or
regarding any right, liability, act, omission on account of any of the parties
thereto or in relation to the agreement shall be referred to the sole
arbitration of the Director (Marketing) of the Corporation or of some
. officer the Corporation who may be nominated by the Director
(Marketing). E
29. As the factual matrix ofthe said case would show, the appointing
authority had not appointed arbitrator till the dealer moved the Court and
it did appoint during the pendency of the proceeding. Be it noted that
dealer had called upon the Corporation to appoint arbitrator on 9.8.2004
and as no appointment was made by the Corporation, he had moved the F
application on 6.12.2004. The Corporation appointed the sole arbitrator
on 28.12.2004 after the application under Section 11 (6) was made. Taking
note of the factual account, the Court opined that there was a forfeiture
of the right of appointment of arbitrator under the agreement and,
therefore, the appointment of the arbitrator by the Corporation during G
the pendency of the proceeding under Section 11(6) of the Act was of
no consequence and remanded the matter to the High Court. The
arbitration clause in Newton Engineering (supra) clearly provided that
if the authority concerned is not there and the office ceases to exist and
parties are unable to reach any agreed solution, the arbitration clause
H
-------------- -- --·
430 SUPREME COURT REPORTS [2017] 7 S.C.R.
A shall cease to exist. Such a stipulation was not there in Deep Trading
Company (supra). That is the major distinction and we shall delineate
on the said aspect from a different spectrum at a later stage.
30. At this juncture, we may also refer to a two-Judge Bench
decision in Municipal Corpn., Jabalap11r and others v. Rajesh
B Constr11ctio11 Co 14 • In the said case the arbitration clause .specifically
provided that if the party invoking arbitration is the contractor, no reference
order shall be maintainable unless the contractor furnishes a security
deposit of a sum determined as per the table given therein. The said
condition precedent was not satisfied by the contractor. Appreciating
the obtaining factual score, the Court held that it has to be kept in mind
c that it is always the duty of the Court to construe the arbitration agreement
in a manner so as to uphold the same, and, therefore, the High Court
was not correct in appointing an arbitrator in a manner, which was
inconsistent with the arbitration agreement. Thus, emphasis was laid on
the manner of appointment which is consistent with arbitration clause
D that prescribes for appointment.
31. The purpose of referring to the aforesaid judgments is that
courts in certain circumstances have exercised the jurisdiction to nullify
the appointments made by the authorities as there has been failure of
procedure or exfacie contravention of the inherent facet of the arbitration
E clause. Submission of the learned counsel for the respondent is that the
authority of the arbitrator can be raised before the learned Arbitrator
and for the said purpose, as stated hereinbefore, he has placed heavy
reliance upon Antrix Corporation Limited (supra). In the said case,
the two-Judge Bench referred to Article 20 of the agreement which
specifically dealt with arbitration and provided that in the event any dispute
F or difference arises between the parties as to any clause or provision of
the agreement, or as to the interpretation thereof, or as to any account
or valuation, or as to rights and liabilities, acts, omissions of any party,
such disputes would be referred to the senior management of both the
parties to resolve the same within three weeks, failing which the matter
G would be referred to an arbitral tribunal comprising of three arbitrators
and the seat of the arbitration would be New Delhi and further that the
arbitration proceedings would be held in accordance with the rules and
procedures of the International Chamber of Commerce (ICC) or
UNCITRAL. As the agreement was terminated, the petitioner therein
" (2001) s sec 344
H
TRF LTD. v. ENERGO ENGINEERING PROJECTS LTD. 431
[DIPAK MISRA, J.]
wrote to the respondent company to nominate the senior management A
to discuss the matter and to try and resolve the dispute between the
parties. However, without exhausting the mediation process, as
contemplated under Article 20(a) of the agreement, the respondent
unilaterally and without prior notice addressed a request for arbitration
to the ICC International Court of Arbitration and one Mr. V.V. Veedar
B
was nominated as the arbitrator in accordance with ICC Rules. The
correspondence between the parties was not fruitful and the petitioner
filed an application under Section 11 (4) read with Section 11 ( 10) of the
Act for issuance of a direction to the respondent to nominate an arbitrator
in accordance with an agreement dated 28.1.2005 and the Rules to
adjudicate upon the disputes which had arisen between the parties and C
to constitute an arbitral tribunal and to proceed with the arbitration.
32. When the matter was listed before the designate of the Chief
Justice of this Court, it was referred to a larger Bench and the Division
Bench, analyzing the various authorities, came to hold thus:
"35 .... Once the provisions of the ICC Rules of Arbitration had D
been invoked by Devas, the proceedings initiated thereunder could
not be interfered with in a proceeding under Section 11 of the
1996 Act. The invocation of the ICC Rules would, of course, be
subject to challenge in appropriate proceedings but not by way of
an application under Section 11(6) of the 1996 Act. Where the E
parties had agreed that the procedure for the arbitration would be
governed by the ICC Rules, the same would necessarily include
the appointment of an arbitral tribunal in terms of the arbitration
a1:,>reement and the said Rules. Arbitration Petition no. 20of2011
under Section 11 (6) of the 1996 Act for the appointment of an
arbitrator must, therefore, fail and is rejected, but this will not F
prevent the petitioner from taking recourse to other provisions of
the aforesaid Act for appropriate relief."
33. The said pronouncement, as we find, is factually distinguishable
and it cannot be said in absolute terms that the proceeding once initiated
could not be interfered with the proceeding under Section 11 of the Act. G
As we find, the said case pertained to ICC Rules and, in any case, we
are disposed to observe that the said case rests upon its own facts.
34. Mr. Sundaram, learned senior counsel for the appellant has
also drawn inspiration from the judgment passed by the designated Judge
H
432 SUPREME COURT REPORTS [2017] 7 S.C.R.
A of this Court in Walter Bau AG (supra), where the learned Judge, after
referring to Antrix Corporation Limited (supra), distinguished the same
and also distinguished the authority inPricol Limited v. Johnson Controls
Enterprise Limited15 and came to hold that:
"l 0. Unless the appointment of the arbitrator is ex facie valid and
B such appointment satisfies the Court exercising jurisdiction under
Section 11 ( 6) of the Arbitration Act, acceptance of such
appointment as a fait accompli to debar the jurisdiction under
Section 11(6) cannot be countenanced in law.... "
35. We may immediately state that the opinion expressed in the
c aforesaid case is in consonance with the binding authorities we have
referred to hereinbefore.
36. Learned counsel for the respondent commenting on the
authority in Walter Bau AG (supra) would submit that the decision
rendered therein is not a precedent and for the said purpose, he has
D placed reliance upon Associated Contractors (supra) wherein a three-
Judge Bench was dealing with a reference that gave rise to the following
issue:
"Which court will have the jurisdiction to entertain and decide an
application under Section 34 of the Arbitration and Conciliation
E Act, 1996."
37. The three-Judge Bench was called upon to lay down the
meaning of the term "court" under Section 2( 1)( e) and Section 42 of the
Act. The Court came to hold that an essential ingredient of Section 42
of the Act is that an application under Part I must be made to a court.
The three-Judge Bench adverted to the rlefinition of the court under
F
Section 2(1)( e) of the Act and opined that the definition contained in the
1940 Act spoke of civil court whereas the definition of the 1996 Act
which says court to be the Principal Civil Court of original jurisdiction in
a district or the High Court in exercise of original civil jurisdiction. That
apart, Section 2( 1)( e) further goes on to say that the court would not
G include any civil court of a grade inferior to such Principal Civil Court, or
a Small Cause Court. The Court discussed with regard to the concept of
'court', referred to the meaning of the phrase "means and includes'',
reverted to the judgment in State ofMaharashtra v. Atlanta Limited16
"(201s) 4 sec 111
"(2014) 11 sec 619
H
TRF LTD. v. ENERGO ENGINEERING PROJECTS LTD. 433
[DIPAK MISRA, J.]
and also reproduced few passages from the seven-Judge Bench in SBP A
& Co. v. Patel Engineering Ltd. 11 and eventually ruled:
"24. If an application were to be preferred to a court which is not
a Principal Civil Court of original jurisdiction in a district or a High
Court exercising original jurisdiction to decide questions forming
the subject matter of an arbitration if the same had been the subject B
matter of a suit, then obviously such application would be outside
the four comers of Section 42. If, for example, an application
were to be filed in a court inferior to a Principal Civil Court, or to
a High Court which has no original jurisdiction, or if an application
were to be made to a court which has no subject-matter jurisdiction,
such application would be outside Section 42 and would not debar C
subsequent applications from being filed in a court other than such
court."
38. The Court summed up the conclusions as follows:
"25 .(a) Section 2( I)( e) contains an exhaustive definition marking D
out only the Principal Civil Court of Original Jurisdiction in a district
or a High Court having original civil jurisdiction in the State, and
no other court as "court" for the purpose of Part I of the Arbitration
Act, 1996.
(b) The expression "with respect to an arbitration agreement" E
makes it clear that Section 42 will apply to all applications made
whether before or during arbitral proceedings or after an award
is pronounced under Part I of the 1996 Act.
(c) However, Section 42 only applies to applications made under
Part I if they are made to a court as defined. Since applications F
made under Section 8 are made to judicial authorities and since ·
applications under Section 11 are made to the Chief Justice or his
designate, the judicial authority and the Chief Justice or his
designate not being court as defined, such applications would be
outside Section 42.
G
(d) Section 9 applications being applications made to a court and
Section 34 applications to set aside arbitral awards are applications
which are within Section 42.
(e) In no circumstances can the Supreme Court be "court" for
11
(2oos) s sec 618
H
434 SUPREME COURT REPORTS [2017] 7 S.C.R.
A the purposes of Section 2(1)(e), and whether the Supreme Court
does or does not retain seisin after appointing an arbitrator,
applications will follow the first application made before either a
High Court having original jurisdiction in the State or a Principal
Civil Court having original jurisdiction in the district, as thtl.case
maybe.
B
(j) Section 42 will apply to applications made after the arbitral
proceedings have come to an end provided they are made under
Part I.
(g) If a first application is made to a court which is neither a
c Principal Court of Original Jurisdiction in a district or a High Court
exercising original jurisdiction in a State, such application not being
to a court as defined would be outside Section 42. Also, an
application made to a court without subject-matter jurisdiction
would be outside Section 42".
D 39. Relying on the said pronouncement, it is urged by the learned
senior counsel for the respondent that the authority in Walter Ba11 AG
(supra) is not a precedent.
40. We have discussed in detail to understand the context in which
judgment in Associated Contractors (supra) was delivered. Suffice it
E to mention that in Walter Bau AG (supra), the designated Judge only
reiterated the principles which have been stated by a two-Judge or three-
Judge Bench decisions that had dealt with Section 11 of the Act. We
may also hasten to make it clear that the authority in Associated
Contractors (supra) deals with a different situation and it has nothing to
do with the conundrum that has arisen in the instant case. We have
F devoted some space as the said authority was pressed into service with
enormous conviction. Be it clearly stated that the said decision is only
concerned with the "concept of court" in the context of Sections 42, 34,
9 and 2(l)(e) of the Act. In the present case, we are exclusively
concerned with the statutory disqualification of the learned arbitrator.
G The principles laid down in Associated Contractors (supra) has no
applicability to the case at hand and reliance placed upon the same, we
are obliged to say, is nothing but a sisyphean endeavour.
41. As we are required to adjudge on the jurisdiction of the
Designated Judge, we may reproduce the relevant conclusion from the
H majority judgment in SBP & Co. (supra). Conclusion (iv), as has been
TRF LTD. v. ENERGO ENGINEERING PROJECTS LTD. 435
[DIPAK MISRA, J.]
summed up in para 47 in SBP's case by the majority, reads as follow: A
"4 7. (iv) The Chief Justice or the Designated Judge will-have the
right to decide the preliminary aspects as indicated in the earlier
part of this judgment. These will be his own jurisdiction to entertain
the request, the existence of a valid arbitration agreement, the
existence or otherwise of a live claim, the existence of the condition B
for the exercise of his power and on the qualifications of the
arbitrator or arbitrators. The Chief Justice or the Designated Judge
would be entitled to seek the opinion of an institution in the matter
of nominating an arbitrator qualified in terms of Section 11 (8) of
the Act if the need arises butthe order appointing the arbitrator C
could only be that of the Chief Justice or the Designated Judge."
42. In Arasmeta Captive Power Company Private Limited and
another v. Lafarge India Private Limited18 , the two-Judge Bench,
though was dealing with the pregnability of the order passed by the
Designated Judge pertaining to excepted matters, dealt with the
submission advanced by the learned counsel for the appellant that the D
three-Judge Bench in C/1loro Controls India Private Limited v. Severn
Trent Water Purification Inc. 19 has not appositely understood the
principle stated in major part of the decision rendered by the larger Bench
in SBP's case. In the said case, the Court, after referring to paragraphs
39 and47(iv), stated thus: E
"18. On a careful reading of para 39 and Conclusion (iv), as set
out in para 47 of SBP case, it is limpid that for the purpose of
setting into motion the arbitral procedure the Chief Justice or his
designate is required to decide the issues, namely, (i) territorial
jurisdiction, (ii) existence of an arbitration agreement between F
the parties, (iii) existence or otherwise of a live claim, and (iv)
existence of the conditions for exercise of power and further
satisfaction as regards the qualification of the arbitrator. That apart,
under certain circumstances the Chief Justice or his designate is
also required to see whether a long-barred claim is sought to be
restricted and whether the parties had concluded the transaction G
by recording satisfaction of the mutual rights and obligations or by
receiving the final payment without objection."
"(2013) 1s sec 414
"(2013) 1 sec 641
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436 SUPREME COURT REPORTS [2017) 7 S.C.R.
A 4 3. It is worthy to note here that in the said case, the Court set
aside the impugned order as the designated Judge had entered into the
billing disputes, which he could not have. The purpose of referring to
these two judgments is that apart from the fact that the Designated
Judge can, at the initial stage, adjudicate upon his jurisdiction, he is also
entitled to scrutinize the existence of the condition precedent for the
B
exercise of his power and also the disqualification of the arbitrator or
arbitrators.
44. Section 11(8) of the Act, which has been introduced in 2015,
reads as follows:
c "(8) The Supreme Court or, as the case may be, the High Court
or the person or institution designated by such Court, before
appointing an arbitrator, shall seek a disclosure in writing from the
prospective arbitrator in terms of sub-section (1) of section 12,
and have due regard to-
D (a) any qualifications required of the arbitrator by the agreement
of the parties; and
(b) the contents of the disclosure and other considerations as are
likely to secure the appointment of an independent and impartial
arbitrator."
E 45. We are referring to the same as learned counsel for the parties
have argued at length with regard to the disclosure made by the arbitrator
and that has also been referred to by the designated Judge. In this
context, we may profitably refer to sub-section (6A) of Section 11 of the
Act which reads as follows:
F "(6A). The Supreme Court or, as the case may be, the High Court,
while considering any application under sub-section (4) or sub-
section (5) or sub-section (6), shall, notwithstanding any judgment,
decree or order of any Court, confine to the examination of the
existence of an arbitration agreement."
G 46. The purpose of referring to the said provision is that the
amended law requires the Court to confine the examination of the
existence of an arbitration agreement notwithstanding any judgment of
the Supreme Court or the High Court while considering an application
under Section 11 ( 6) of the Act. As the impugned order would indicate,
· the learned Judge has opined that there had been no failure of procedure,
H
TRF LTD. v. ENERGO ENGINEERING PROJECTS LTD. 437
[DIPAK MISRA, J.]
for there was a request for appointment of an arbitrator and an arbitrator A
has been appointed. It is apt to state here that the present factual score
projects a different picture altogether and we have to carefully analyse
the same.
47. We are required to sit in a time machine and analyse the
judgments in this regard. In Datar Switclrgears (supra), it has been B
held that the appointment made by the respondent was invalid inasmuch
as there was no proper notice by the appellant to appoint an arbitrator
and before an application under Section 11 (6) of the Act was filed, the
arbitrator was appointed. Relevant part of clause 20.9 of the agreement
in the said case postulates thus:
c
"20.9. It is agreed by and between the parties that in case of any
dispute under this lease the same shall be referred to an arbitrator
to be nominated by the lessor and the award of the arbitrator shall
be final and binding on all the parties concerned."
The aforesaid clause lays down that the lessor shall nominate the D
arbitrator.
48. In Newton E11gi11eeri11g (supra), though the agreement has
not been produced in the judgment, the Court has anaylsed in detail the
purport of the arbitration clause in the agreement and ruled that the
matter shall be referred to the sole arbitration of ED (NR) of the E
respondent Corporation and ifthe said authority is unable and unwilling
to act, the matter shall be referred to the sole arbitration of some other
person designated by ED (NR) in his place who is willing to act as a sole
arbitrator. The said post had ceased to exist and as the parties intended
the matter to go to arbitration, the respondent substituted the arbitrator
with the Director (Marketing) in the arbitration clause subject to the F
written confirmation giving the consent by the contractor. The contractor
informed the Corporation that it would like to have the arbitrator appointed
under the Act whereby each of the parties would be appointing one
arbitrator each to which the Corporation did not accede. At that juncture
the contractor moved an application under Section 11 ( 6C) of the Act G
and the High Court appointed a retired Judge. Taking exception to the
view of the High Court, the two-Judge Bench held, as stated earlier, that
the arbitration clause postulated sole arbitrator would be ED (NR) or his
nominee and no one else and, therefore, Section 11 ( 6C) was not
applicable. The Court ruled that as the parties had not been able to
H
438 SUPREME COURT REPORTS [2017] 7 S.C.R.
A reach the agreed decision, the arbitration clause did not survive.
49. In Deep Trading Company (supra) while approving the view
expressed in Newton Engineering (supra), the Court observed that in
the said case the Court was not concerned with the question of forfeiture
of the right of the Corporation for appointment of an arbitrator and
B accordingly while setting aside the order sent for fresh consideration by
the Chief Justice or the Designated Judge.
50. The aforesaid three cases exposit three different situations.
The first one relates to non-failure of the procedure and the authority of
the owner to appoint the arbitrator; the second relates to non-survival of
c the arbitration clause; and the third pertains to forfeiture of the right of
the Corporation to appoint the sole arbitrator because of the failure to
act with the procedure agreed upon by the parties in clause 29 which
was the arbitration clause in the agreement. It is interesting to note that
clause 29 in Deep Trading Company (supra) does not mention unlike
Newton Engineering (supra) that no one else shall arbitrate upon.
D
51. One aspect needs to be noted. In the first and third case, the
parties had not stipulated that there will be no one else who can arbitrate
while in the second case, i.e., Newton Engineering (supra), such a
stipulation was postulated.
E 52. Regard being had to the same, we have to compare and analyse
the arbitration clause in the present case. Clause (c), which we have
reproduced earlier, states that all disputes which cannot be settled by
mutual negotiation shall be referred to and determined by arbitration as
per the Act, as amended. Clause (c) is independent of Clause (d). Clause
(d) provides that unless otherwise provided, any dispute or difference
F between the parties in connection with the agreement shall be referred
to the sole arbitration of the Managing Director or his nominee.
53. First, we shall d,eal with Clause (d). There is no quarrel that
by virtue of Section 12(5) of the Act, if any person who falls under any
of the categories specified in the Seventh Schedule shall be ineligible to
G be appointed as the arbitrator. There is no doubt and cannot be, for the
language employed in the Seventh Schedule, the Managing Director of
the Corporation has become ineligible by operation of law. It is the
stand of the learned senior counsel for the appellant that once the
Managing Director becomes ineligible, he also becomes ineligible to
H nominate. Refuting the said stand, it is canvassed by the learned senior
TRF LTD. v. ENERGO ENGINEERING PROJECTS LTD. 439
[DIPAK MISRA, J.]
counsel for the respondent that the ineligibility cannot extend to a nominee A
ifhe is not from the Corporation and more so when there is apposite and
requisite disclosure. We think it appropriate to make it clear that in the
case at hand we are neither concerned with the disclosure nor objectivity
nor impartiality nor any such other circumstance. We are singularly
concerned with the issue, whether the Managing Director, after becoming B
ineligible by operation oflaw, is he still eligible to nominate an arbitrator.
At the cost of repetition, we may state that when there are two parties,
one may nominate an arbitrator and the other may appoint another. That
is altogether a different situation. Ifthere is a clause requiring the parties
to nominate their respective arbitrator, their authority to nominate cannot
be questioned. What really in that circumstance can be called in question C
is the procedural compliance and the eligibility of their arbitrator depending
upon the norms provided under the Act and the Schedules appended
thereto. But, here is a case where the Managing Director is the "named
sole arbitrator" and he has also been conferred with the power to
nominate one who can be the arbitrator in his place. Thus, there is D
subtle distinction. In this regard, our attention has been drawn to a two-
Judge Bench decision in State of Orissa and others v. Commissioner
of Land Records & Settlement, Cuttack and others20 • In the said
case, the question arose can the Board of Revenue revise the order
passed by its delegate. Dwelling upon the said proposition, the Court
~ E
"25. We have to note that the Commissioner when he exercises
power of the Board delegated to him under Section 33 of the
Settlement Act, 1958, the order passed by him is to be treated as
an order of the Board of Revenue and not as that of the
Commissioner in his capacity as Commissioner. This position is F
clear from two rulings of this Court to which we shall presently
refer. The first of the said rulings is the one. decided by the
Constitution Bench of this Court in Roop Chand v. State of
Punjab. In that case, it was held by the majority that where the
State Government had, under Section 41(1) of the East Punjab
Holdings (Consolidation and Prevention of Fragmentation) Act, G
1948, delegated its appellate powers vested in it under Section
21 (4) to an "officer", an order passed by such an officer was an
order passed by the State Government itself and "not an order
20 (1998)1 sec 162
H
440 SUPREME COURT REPORTS [2017] 7 S.C.R.
A passed by any officer under this Act" within Section 42 and was
not revisable by the State Government. It was pointed out that for
the purpose of exercise of powers of revision by the State under
Section 42 of that Act, the order sought to be revised must be an
order passed by an officer in his own right and not as a delegate
of the State. The State Government was, therefore, not entitled
B
under Section 42 to call for the records of the case which was
disposed of by an officer acting as its delegate."
54. Be it noted in the said case, reference was made to Behari
K1111j Sahkari Awas Samiti v. State of U.P. 2 ', which followed the
decision in Roop Chand v. State ofP11njab 22 • It is seemly to note here
c that said principle has been followed in Chairman, Indore Vikas
Pradhikaran (supra).
55. Mr. Sundaram, has strongly relied on Firm ofPratapchand
Nopaji (supra). In the said case, the three-Judge Bench applied the
maxim "Qui facit per aliumfacit per se ". We may profitably reproduce
D the passage:
"9 .... The principle which would apply, if the objects are struck
by Section 23 of the Contract Act, is embodied in the maxim:
"Qui facit per alium facit per se" (What one does through another
is done by oneself). To put it in another form, that which cannot
E be done directly may not be done indirectly by engaging another
outside the prohibited area to do the illegal act within the prohibited
area. It is immaterial whether, for the doing of such an illegal act,
the agent employed is given the wider powers or authority of the
"pucca adatia", or, as the High Court had held, he is clothed with
F the powers of an ordinary commission agent only."
56. The aforesaid authorities have been commended to us to
establish the proposition that if the nomination of an arbitrator by an
ineligible arbitrator is allowed, it would tantamount to carrying on the
proceeding of arbitration by himself. According to learned counsel for
G the appellant, ineligibility strikes at the root of his power to arbitrate or
get it arbitrated upon by a nominee.
57. In such a context, the fulcrum of the controversy would be,
can an ineligible arbitrator, like the Managing Director, nominate an
21 (I997) 1 sec 37
22 AIR 1963 SC 1503
H
TRF LTD. v. ENERGO ENGINEERING PROJECTS LTD. 441
[DIPAK MISRA, J.]
arbitrator, who may be otherwise eligible and a respectable person. As A
stated earlier, we are neither concerned with the objectivity nor the
individual respectability. We are only concerned with the authority or the
power of the Managing Director. By our analysis, we are obligated to
arrive at the conclusion that once the arbitrator has become ineligible by
operation of law, he cannot nominate another as an arbitrator. The B
arbitrator becomes ineligible as per prescription contained in Section
12(5) of the Act. It is inconceivable in law that person who is statutorily
ineligible can nominate a person. Needless to say, once the infrastructure
collapses, the superstructure is bound to collapse. One cannot have a
building without the plinth. Or to put it differently, once the identity of the
Managing Director as the sole arbitrator is lost, the power to nominate C
someone else as an arbitrator is obliterated. Therefore, the view
expressed by the High Court is not sustainable and we say so.
58. Another facet needs to be addressed. The Designated Judge
in a cryptic manner has ruled after noting that the petitioner therein had
no reservation for nomination of the nominated arbitrator and further D
taking note of the fact that there has been a disclosure, that he has
exercised the power under Section 11(6) of the Act. We are impelled to
think that that is not the right procedure to be adopted and, therefore, we
are unable to agree with the High Court on that score also and, accordingly,
we set aside the order appointing the arbitrator. However, as Clause ( c)
is independent of Clause (d), the arbitration clause survives and hence, E
the Court can appoint an arbitrator taking into consideration all the aspects.
Therefore, we remand the matter to the High Court for fresh consideration
of the prayer relating to appointment of an arbitrator.
59. Resultantly, the appeals are allowed, the orders passed by the
learned Single Judge are set aside and the matters are remitted to the F
High Court for fresh consideration. In the facts and circumstances of
the case, there shall be no order as to costs.
Devika Gujral Appeals allowed.
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