- Bench: Justice R.F. Nariman
- Appellant: Bharat Broadband Network Ltd.
- Respondent: United Telecoms Ltd.
Issue
- Was the Managing Director of the appellant company right in being appointed as the arbitrator himself as under Section 12(5) of the Arbitration And Conciliation Act?
- What are the requisites directed under the Act for the appointment of the arbitrator?
Facts
- The appellant and the respondent entered into an agreement for the supply and installation of equipment.
- The agreement involved an arbitration clause and the appointment of the arbitrator was subject to the clauses under the Act.
- Since disputes arose between the parties, the respondent invoked the arbitration clause and called upon the appellant’s Chairman and Managing Director to appoint an independent and impartial arbitrator for adjudication of disputes.
- Shri K.H. Khan was appointed as sole arbitrator to adjudicate and determine disputes that had arisen between the parties. It is imperative to note that the Court, by its judgment in TRF Ltd. v. Energo Engineering Projects Ltd., (2017) 8 SCC 377 [“TRF Ltd.”], held that since a Managing Director of a company which was one of the parties to the arbitration, was himself ineligible to act as arbitrator, such ineligible person could not appoint an arbitrator, and any such appointment would have to be held to be null and void.
- It was submitted on this basis that Shri Khan should withdraw himself as an arbitrator and file for a substitute arbitrator.
- The request was set aside by Shri Khan thus leading to this appeal in the HC.
Appellant's Contentions
The appellant argued that under Section 12 to Section 14 of the Act and also on the Supra judgement and has argued that the appointment of Shri Khan goes to eligibility to be appointed as an arbitrator, as a result of which the appointment made is void ab initio.
Further, since there is no express agreement in writing between the parties subsequent to disputes having arisen between them that Shri Khan’s appointment is agreed upon, the proviso will not be applicable in the present case.
Respondent's Contentions
- The counsel appearing supported the impugned judgement and added that Section 12(4) makes it clear that a party may challenge the appointment of an arbitrator appointed by it only for reasons of which it became aware after the appointment has been made.
- It submitted that in the present case, since under Section 12(5) and Seventh Schedule were on the statute book, it was argued that the appellant was aware of these provisions and thus does not allow the appellant to file an appeal under Section 14 and Section 15.
Judgement
The appeal was allowed and the impugned judgement was set aside. It said that since the mandate of Shri Khan having terminated, as he has become de jure unable to perform his function as an arbitrator, the High Court may appoint a substitute arbitrator with the consent of both the parties.
Relevant paragraphs
Section 12(5), on the other hand, is a new provision which relates to the de jure inability of an arbitrator to act as such. Under this provision, any prior agreement to the contrary is wiped out by the non- obstante clause in Section 12(5) the moment any person whose relationship with the parties or the counsel or the subject matter of the dispute falls under the Seventh Schedule. The sub-section then declares that such person shall be "ineligible" to be appointed as arbitrator. The only way in which this ineligibility can be removed is by the proviso, which again is a special provision which states that parties may, subsequent to disputes having arisen between them, waive the applicability of Section 12(5) by an express agreement in writing. What is clear, therefore, is that where, under any agreement between the parties, a person falls within any of the categories set out in the Seventh Schedule, he is, as a matter of law, ineligible to be appointed as an arbitrator. The only way in which this ineligibility can be removed, again, in law, is that parties may after disputes have arisen between them, waive the applicability of this sub-section by an "express agreement in writing". The "express agreement in writing" has reference to a person who is interdicted by the Seventh Schedule, but who is stated by parties (after the disputes have arisen between them) to be a person in whom they have faith notwithstanding the fact that such person is interdicted by the Seventh Schedule.
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