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Judgment Analysis: Ineligible Arbitrator Cannot Nominate Another Arbitrator says the Supreme Court

Amendments to the Arbitration and Conciliation Act in 2015 brought in the concept of “ineligible arbitrator”.  As per the newly introduced Section 12(5), an arbitrator shall become ineligible if his / her relationship with the parties or counsel or the subject – matter of the dispute falls under any of the categories specified in Seventh Schedule of the Act. For e.g. if the arbitrator is an employee, consultant or advisor of one of the parties to the dispute he cannot act as an arbitrator.

The above position of law on ineligibility of arbitrators is very clear. However, it was not clear until recently whether appointments / nominations made by an arbitrator who has become ineligible as per the operation of law are valid or not.  Recently, this question of law came up for the consideration of the Hon’ble Supreme Court in the case of TRF Ltd. vs. Energo Engineering Projects Ltd. 2017 SCC OnLine SC 692.

The Hon’ble Supreme Court, was considering several special leave appeals in which the seminal question was whether once a person (for e.g. Managing Director of a party) who was required to arbitrate disputes under a contract become ineligible by operation of law, he would be eligible to nominate a person to act as the arbitrator. The Hon’ble Court placing reliance on the latin maxim “,” meaning “what one does through another is done by oneself” has come to the conclusion that once the arbitrator has become ineligible by operation of law he cannot nominate another as arbitrator.

This Judgment would further transparency and professionalism in ad hoc arbitrations in India. This judgment should also act as a wakeup call for enterprises to review, revise and align their dispute resolution clauses in line with the latest changes in the arbitration law and practice in India.

Asha Treesa Joseph is the Dy. Head Arbitration and Mediation, Surana and Surana International Attorneys, Chennai.

[The opinions expressed in this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of LiveLaw and LiveLaw does not assume any responsibility or liability for the same].

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