Close Relative Of Arbitrator Must Be 'Controlling The Company' To Make Him Ineligible: Orissa High Court

The Orissa High Court has clarified that to make an arbitrator ineligible under Clause 9 of the Seventh Schedule read with Section 12(5), the Arbitration and Conciliation Act, 1996, the arbitrator must have a close family relationship with a party and in case of companies, he must have a close relation with the person(s) in the management who should be "controlling the company". A Single Bench of Chief Justice Dr. S. Muralidhar observed, "Further, Clause-9 of the Seventh Schedule requires the Arbitrator to have a close family relationship, in the case of companies, with "the persons in the management and controlling the company". Therefore, there is a two-fold requirement: not only has the person to be in management but such person should also be controlling the company." Notably, the seventh schedule to the Act is a necessary corollary of the stipulation made under Section 12(5). Section 12(5) reads, "Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or the 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." The proviso to the sub-section provides that the parties may waive the applicability of the provision by an express agreement in writing. Factual Background: The challenge in the petition was to continuance of the arbitrator seized of adjudicating the dispute between the parties in view of declaration made by such arbitrator on 9th September, 2021 that his younger brother was at that point in time employed in the Opposite Party as an Executive Director-(ED) (Project and Technical). The petitioner participated in the proceedings thereafter and as it transpired, the said ED superannuated on 30th April, 2022. During the hearing before the arbitrator on 31st March 2022, an objection was raised to his continuation as an arbitrator in view of the above declaration. The Arbitrator noted in the minutes of the order passed on that date that neither of the parties had raised an objection regarding his appointment and further that his brother was due to retire from service of NALCO in April, 2022. Contentions of the Petitioner: The counsel for the petitioner contended that in terms of proviso to Section 12(5) of the Act, there could not be a waiver of the applicability of Section 12(5) of the Act unless it was by an express agreement in writing. According to him, inasmuch as there is no express writing as to the waiver, the prohibitive Clause-9 in the Seventh Schedule to the Act would stand attracted and the Arbitrator would be rendered de jure unable to act in terms of Section 14(1)(a) of the Act. Contentions of the Respondent: Mr. A. Gupta, counsel for the respondent submitted that Clause-9 of the Seventh Schedule would not stand attracted at all not only because the younger brother of the Arbitrator has ceased to be an ED in NALCO on 30th April 2022, but also because such person cannot be said to be "in the management and controlling the company" since he is one among several EDs, which would also include the ED (Law), ED (Finance), ED (Materials) etc. Court's Observations: The Court noted that the arbitration is at a stage where pleadings are complete but no substantive hearings have taken place. Further, it acknowledged that the Arbitrator did make a disclosure as required under the Act on 9th September, 2021. Thus, the Court held that as the younger brother of the arbitrator ceased to be an ED of NALCO since 30th April 2022, there can be no apprehension that this would affect the impartiality of the arbitrator in the substantive arbitral proceedings that are yet to commence. The Court further observed, "Even if, for a moment, it is considered that an ED (Project and Technical) of NALCO would be in the management of NALCO, that by itself cannot mean that such ED is 'controlling' NALCO. He would be one among several EDs who are all employees of NALCO. Therefore, there is merit in the contention that Clause-9 of the Seventh Schedule to the Act would not stand attracted in the facts of the present case." Accordingly, the petition was dismissed. Case Title: Abhay Trading Pvt. Ltd., Mumbai v. National Aluminium Company Ltd., NALCO, Bhubaneswar Case No.: ARBP No. 19 of 2022 Order Dated: 30th September 2022 Coram: Dr. S. Muralidhar, CJ. Counsel for the Petitioner: Mr. Prasanjeet Mohapatra and Mr. Adhiraj Mohanty, Advocates Counsel for the Respondent: Mr. A. Gupta, Advocate Citation: 2022 LiveLaw (Ori) 147Click Here To Read/Download Order

Close Relative Of Arbitrator Must Be 'Controlling The Company' To Make Him Ineligible: Orissa High Court

Jyoti Prakash Dutta

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