Award Passed By Improperly Appointed Arbitrator Is Non-Est In Law And Invalid: Delhi High Court

The Delhi High Court bench of Justice Jasmeet Singh has held that it is settled law that the Arbitrator is a creature of the contract and has to function within four corners of contract. If a particular mechanism is contemplated for his appointment, the same must be followed in its true letter, spirit and intent, failing which the Arbitrator is without jurisdiction and the appointment is non-est and invalid. Brief Facts: The petitioner was awarded the work of “Civil works for raising of Ash dyke by the Respondent vide Letter of Acceptance dated 06.12.2005. The duration for completion of the work was 12 months. The respondent on 23.08.2008 terminated the contract. The petitioner being aggrieved by the termination invoked arbitration under Clause 56 of the GCC, being the Arbitration Clause. As per the Arbitration Clause, the General Manager/Business Unit Head was the named Arbitrator to adjudicate the disputes between the parties. Since he was the supervising/controlling authority with regard to the contract in question, held various meetings with the petitioner reviewing the progress of the work and was the authority that took the decision to terminate the contract, the petitioner requested for appointment of an independent Arbitrator for adjudication of the disputes. However, the respondent on 20.12.2010 emphasized that in terms of clause 56 of the GCC, only the General Manager/Business Unit Head can be appointed as the Sole Arbitrator to adjudicate the disputes. The successor of the General Manager/Business Unit Head assumed office and acted as an arbitrator which led to passing of the impugned award. Contentions: The petitioner submitted that even though prior to the amendment, the Arbitrator being an employee of one of the parties was not an ipso facto ground for presumption of bias/lack of independence but the petitioner is within its rights to levy and prove justifiable apprehensions about the independence and impartiality of the named Arbitrator when the Arbitrator is the dealing authority for the contract in question. It was further argued that the new General Manager/Business Unit Head of the respondent automatically assumed jurisdiction without any reference to Chairman and Managing Director of the NTPC, hence, the composition of the Arbitral Tribunal is contrary to the arbitration clause. Per contra, the respondent submitted that the despite the order of the Hon‟ble High Court of Orrisa clarifying that there is no stay in the arbitral proceedings, the petitioner failed to participate in the arbitral proceedings. Therefore, the petitioner cannot be permitted to take benefit of its own wrong. It was also argued that prior to the amendment of 2015, unilateral appointments were allowed without any restrictions. The petitioner has failed to show any basis for having justifiable doubts regarding the independence or impartibility of the appointment by the petitioner. Therefore, the petitioner was obligated to participate in the proceedings. Observations: The court noted that as per arbitration clause, the general manager/unit head was empowered to act as an arbitrator and in the absence of the general manager/unit head, managing director or chairman of the respondent company was empowered to appoint any other person as an arbitrator. It further added that prior to amendment act of 2015, appointment of an employee as an arbitrator was not by itself a ground for bias as held by the Supreme Court in Aravali Power Co. (P) Ltd. v. Era Infra Engg. Ltd., (2017) . However, justifiable doubts could be raised if the person was a controlling or dealing authority with respect to subject matter in dispute. Similarly, the Supreme Court in Ellora Paper Mills Ltd. v. State of M.P., (2022) held that “sub-section (5) of Section 12 lays down that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subject-matter of the dispute falls under any of the categories specified in the Seventh Schedule, he shall be ineligible to be appointed as an arbitrator.” While applying the above ratio to the facts of the present case, the court observed that after the amendment act of 2015, the employee of the respondent could not act as an arbitrator in view of section 12(5) read with schedule 7 of the Arbitration Act therefore the named arbitrator could not be allowed to continue. The court further noted that it is the General Manager/Business Unit Head of the respondent company who was supervising the work in question and was directly involved in the execution of the work. It is the General Manager/Business Unit Head of the respondent company with whom the petitioner‟s had repeated meetings regarding the progress of the work and the authority that took the decision of termination of the contract. Based on the above the court concluded that the...

Award Passed By Improperly Appointed Arbitrator Is Non-Est In Law And Invalid: Delhi High Court

Mohd Malik Chauhan

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