Terminating Arbitrator's Mandate Over Mere Allegations Of Corruption Would Set Dangerous Precedent: Delhi High Court

The Delhi High Court held that mere allegations of corruption or pendency of an unverified complaint against an arbitrator cannot justify termination of arbitrator's mandate under section 14 of the Arbitration and Conciliation Act, 1996 (Arbitration Act). Justice Jyoti Singh held that “mandate of an Arbitrator cannot be terminated solely on the basis of unsubstantiated allegations or mere complaints.. De jure ineligibility is an inherent disability and mere allegations cannot meet this threshold. Terminating the mandate on a mere complaint, would be contrary not only to Section 14 of the 1996 Act, but would set a dangerous precedent where any party, unhappy with the course of arbitral proceedings, may refer to a complaint by a third party with unfounded and false accusations and seek termination of the mandate.” Background: The dispute arose out of an Engineering Procurement and Construction Agreement dated ('EPC Agreement') between National Highway Infrastructure Development Corporation Ltd. (NHIDCL) and NSPR VKJ JV, a joint venture between NSPR Constructions Pvt. Ltd. and Vinod Kumar Jain for upgradation of NH-717A in West Bengal. After dispute having arisen between the parties, the respondent invoked the arbitration clause under clause 26.3 of the EPC Agreement and initiated proceedings under the aegis of Society for Affordable Redressal of Disputes (SAROD). A three member arbitral tribunal was constituted. During pendency of arbitration, NHIDCL claimed to have discovered from media reports and online searches that the presiding arbitrator was named in a complaint before Madhya Pradesh Lokayukta regarding corruption allegations dating back to 2016. The petitioner requested the arbitrator to recuse but he refused. The petitioner had approached the High Court by filing a petition under sections 14 and 15 of the Arbitration Act seeking termination of the arbitrator's mandate on grounds of non-disclosure, bias and de-jure ineligibility. The Petitioner submitted that owing to serious allegations of corruption against Respondent No. 4, he was de jure ineligible to be appointed as the Presiding Arbitrator of the Arbitral Tribunal .It was further contended that although the ground is not specifically listed in either fifth or seventh schedule, there is no gainsaying that appointment of an Arbitrator with corruption charges will undermine the credibility of arbitral process. It was also argued that the arbitrator's conduct to close the petitioner's right to file statement of defence if objections as to his continuance were not withdrawn demonstrated bias. Per contra, the Respondents submitted that no FIR was registered against the arbitrator and allegations of corruption were raised against based on unverified media reports. It was further argued that SAROD had already rejected the petitioner's contentions holding that an arbitrator could not be substituted based on allegations without concrete evidence. Lastly, it was submitted that registration or pendency of a complaint is not a ground enumerated under Fifth or Seventh Schedules and the courts cannot disqualify an arbitrator based on grounds not enumerated in the schedules. Findings: The court observed that section 12,13 and 14 of the Arbitration Act form a complete code governing the appointment and termination of arbitrator's mandate. “After the 2016 Amendment Act, the law draws a clear dichotomy between ineligibility under the Seventh Schedule and justifiable doubts under the Fifth Schedule. Only those grounds enumerated in the Seventh Schedule render an arbitrator de jure ineligible,” the Court held, citing HRD Corporation v. GAIL (India) Ltd. The court rejected the petitioner's contention that the arbitrator had threatened to close its right to file defence. holding that the communication was neither coercive nor biased but a natural consequence of procedural discipline. It held that “the letter dated 24.10.2024 merely sought confirmation whether NHIDCL wished to pursue its application for extension of time in light of its own demand for recusal. The contents are far from threatening and cannot be construed as bias". The court held that the above objection fell outside the scope of section 14 of the Arbitration Act and could not establish de-jure ineligibility. On corruption allegations, the court observed that no FIR or legal proceedings were pending against the arbitrator. It held that “It must be penned down that the petitioner ought to have verified facts before making serious allegations of corruption… Since there is no FIR, this objection must be straightaway overruled". On Lokayukat complaint, the court opined that “a mere complaint or newspaper article cannot form the basis for termination under Section 14. Unless such allegations lead to tangible legal action or judicial findings, they remain unsubstantiated suspicions and cannot...

Terminating Arbitrator's Mandate Over Mere Allegations Of Corruption Would Set Dangerous Precedent: Delhi High Court

Mohd Malik Chauhan

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Mohd Malik Chauhan

Terminating Arbitrator's Mandate Over Mere Allegations Of Corruption Would Set Dangerous Precedent: Delhi High Court

Mohd Malik Chauhan

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Mohd Malik Chauhan

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