This article is written by Jordi Malayil pursuing Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho.

Introduction

The Latin maxim, Nemo judex in causa sua, i.e., no person should be a judge in his/her cause. This is a cardinal principle of natural justice. Also, justice must not only be done but must be seen to be done, irrespective of whether the proceedings are judicial or quasi-judicial in nature. Caesar’s wife must be above suspicion. All these wise words are truly applicable in the appointment of an arbitrator. An arbitrator shall be independent, unbiased, impartial, neutral, and above all suspicions. 

The Arbitration and Conciliation Act, 1996 did not mention how to overcome the intricacies of the biases of the appointed arbitrator in a well-defined and unambiguous manner.  However, the Arbitration and Conciliation (Amendment) Act 2015 introduced certain safeguards to eliminate biases of arbitrator(s). Section 12 (5) introduced by the 2015 Amendment Act clearly specified that 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 as an arbitrator. 

When the Section 12 (5) and seventh schedule to the Arbitration and Conciliation (Amendment) Act indicated that certain categories of people are ineligible to be appointed as an arbitrator, another important and crucial question arose in the determination of justice. Whether a person who himself/herself is ineligible to be an arbitrator can nominate an arbitrator? The Supreme Court tried to sort out the question on several occasions.

Ineligible person 

Arbitration and Conciliation (Amendment) Act, 2015 put forth certain categories of persons who cannot be appointed as an arbitrator. In order to ensure independent, unbiased, and neutral decisions by an arbitrator, Sub-section 5 was added to Section 12 of the Arbitration and Conciliation (Amendment) Act. 

Section 12 (5) says:

“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 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.”

Further, the Seventh Schedule to the Arbitration and Conciliation (Amendment) Act specifies 19 categories of ineligible persons who are not eligible to be appointed as an arbitrator under three heads; 

1. Arbitrator’s relationship with the parties or counsel.
2. Relationship of the arbitrator to the dispute.
3. Arbitrator’s direct or indirect interest in the dispute.

Nomination of an arbitrator by an ineligible person: As mentioned in the law

Even though the Arbitration and Conciliation (Amendment) Act, 2015 specifically mentioned the ineligibility of an arbitrator under the Seventh Schedule of the act, it explicitly says nothing about the nomination of an arbitrator by an ineligible person. Section 12 (5) and seventh schedule to the Act only indicated certain categories of people who are ineligible to be appointed as an arbitrator.

In the case of TRF Limited vs. Energo Engineering Private Limited, Senior Advocate P. Chidambaram argued that if any person’s relationship with the parties or the counsel or the subject matter of dispute falls under any of the categories specified in the Seventh Schedule is only in relation to the appointment of a person as an arbitrator. It cannot be interpreted otherwise. It submitted that grounds provided under the Seventh Schedule explicitly about the appointed arbitrator and not in relation to the appointing authority and, therefore, each and every ground/circumstance categorized under the Seventh Schedule is to be reckoned and decided in relation to the appointed arbitrator alone and not as a general principle. Further, it is mentioned that there is no justification to reach such a conclusion that an appointed arbitrator will be disqualified only because of the ineligibility to be appointed as an arbitrator. He always has his right to nominate an independent and neutral arbitrator- Chidambaram added.

Stand of the Supreme Court 

In the case of TRF Limited vs. Energo Engineering Projects Limited (2017), for the first time, the Supreme Court held that a person who himself/herself de jure ineligible to be appointed as an arbitrator cannot nominate an arbitrator. Subsequently, in Bharat Broadband Network Limited vs. United Telecoms Limited (2019) and Perkins Eastman Architects DPC & Anr. vs. HSCC (India) Limited (2019) the Supreme Court gave the same dictum. But, the verdict by the Supreme Court in Central Organisation for Railway Electrification vs. ECI-SPIC-SMO-MCML (CORE Case-2019) created a predicament by upholding the validity of an arbitration clause giving power to an ineligible person to appoint an arbitrator. However, the recent order of the Supreme Court in Union of India vs. M/S Tantia Construction Limited (TCL case-2021), referring the matter to a larger bench to examine the correctness of the order in the CORE case, paves the way to end this legal quandary.

In TRF Limited vs. Energo Engineering Private Limited case, the Supreme Court emphatically ruled that a person who himself/herself is ineligible to be appointed as an arbitrator cannot nominate an arbitrator. For this conclusion, the court relying on the maxim qui facit per alium facit per se, i.e., what one does through another is done by oneself. 

The arbitrator becomes ineligible as per the conditions mentioned in Section 12 (5) of the Arbitration and Conciliation (Amendment) Act, 2015. It is imprudent that a person who is statutorily ineligible can nominate a person. If the nomination of an arbitrator by an ineligible arbitrator is allowed, it would have tantamount to carrying on the proceeding of arbitration by himself. The court figuratively observed that ‘once the infrastructure collapses, the superstructure is bound to collapse.

In the cases of Bharat Broadband Network Limited vs. United Telecoms Limited and Perkins Eastman Architects DPC & Anr. Vs. HSCC (India) Limited, the Supreme Court upheld the ruling of the TRF case.

Contradictory judgement

In Central Organisation for Railway Electrification vs. ECI-SPIC-SMO-MCML (CORE) case, the Supreme Court gave a judgement that contradicted the judgements pronounced in the TRF case, BBNL case, and Perkins case. These cases clearly settled the position in relation to the appointment of an arbitrator by an ineligible person and held that any person who is itself de jure ineligible to be appointed as an arbitrator, is also disqualified to appoint an arbitrator.    

However, in the CORE case, the Supreme Court upheld the validity of an arbitration clause giving power to an ineligible person to appoint an arbitrator. In this case, the Supreme Court, respecting the principles of party autonomy in an arbitral process, has in principle restated that the courts shall give priority to adhere to the agreed procedure for appointing an arbitrator. As a result, the CORE case created confusion in relation to the validity of the appointment of an arbitrator by an ineligible person.

Reference to the larger bench

On 11 January 2021, a three-judge bench comprising Justice R.F. Nariman, Justice Navin Sinha, and Justice K.M. Joseph, while delivering the order in the case of Union of India vs. M/S Tantia Construction Limited (TCL case-2021), requested the Hon’ble Chief Justice of India to constitute a larger bench to look into the correctness of CORE case judgment. In the TCL case, the bench dealt with an exactly similar matter of the CORE case.

The bench stated that: “We have perused the aforesaid judgment and prima facie disagree with it for the basic reason that once the appointing authority itself is incapacitated from referring the matter to arbitration, it does not then follow that notwithstanding this yet appointments may be valid depending on the facts of the case. We, therefore, request the Hon’ble Chief Justice to constitute a larger bench to look into the correctness of this judgment”. 

Conclusion

Regardless of the proceedings of judicial or quasi-judicial in nature, the adjudicators as judges or arbitrators must be impartial and neutral. One of the parties to the arbitration unilaterally appoints a sole arbitrator often raises strong apprehensions of biases. This may lead to a compromise of the cardinal principles of natural justice, i.e., impartiality and neutrality. 

The change in the legal position in the appointment of the sole arbitrator after the promulgation of the Arbitration and Conciliation (Amendment) Act, 2015, is a developing step in the judicial system in India. In the case of TRF Limited vs. Energo Engineering Projects Limited and in subsequent cases of Bharat Broadband Network Limited vs. United Telecoms Limited and Perkins Eastman Architects DPC & Anr. Vs. HSCC (India) Limited the Supreme Court categorically made it clear that the person who himself/herself de jure ineligible to be appointed as an arbitrator cannot nominate an arbitrator. 

Ironically, another bench of the Supreme Court in the CORE case took a contradicting view regarding the same matter. This created a legal dilemma. Even though, contradicting views taken by the different benches of the Supreme Court, the decision, of a three-judge bench in the TCL case, to refer the matter to a larger bench to decide the correctness of the judgement of the CORE case, giving a ray of hope to revive natural justice.

Reference

• https://prsindia.org/files/bills_acts/acts_parliament/2015/the-arbitration-and-conciliation-(amendment)-act,-2015.pdf
• https://www.mondaq.com/india/arbitration-dispute-resolution/1066980/validity-of-appointment-of-an-arbitrator-by-an-ineligible-person-a-new-ray-of-hope-in-the-existing-dilemma
• http://arbitrationblog.kluwerarbitration.com/2017/10/18/ineligible-arbitrator-also-ineligible-nominate-arbitrator-indian-supreme-court-judgement-opens-pandoras-box/
• https://www.argus-p.com/uploads/blog_article/download/1588417843_Perkins_-_A_Critical_Analysis.pdf
• https://www.legitquest.com/case/tantia-constructions-limited-v-union-of-india/1C998B
• https://www.law.ox.ac.uk/business-law-blog/blog/2020/07/invalidity-solo-run-sole-arbitrator-under-indian-arbitration-act

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