Is Appointment Of Arbitrator By Ineligible Person Valid?Supreme Court Refers Issue To Larger Bench

The Supreme Court has referred to larger bench the issue whether the appointment of an arbitrator by a person, who is disqualified to be an arbitrator as per Section 12(5) of the Arbitration Act, is valid.A bench comprising Justices RF Nariman, Navin Sinha and KM Joseph doubted the correctness of the decision in Central Organisation for Railway Electrification vs.M/s ECI-SPIC-SMO-MCML (JV) A Joint Venture Company and referred the issue to larger bench.In the decision delivered on December 17, 2019 in Central Organization of Railway Electrification, a division bench comprising Justices R Banumathi and AS Bopanna had held that such appointments by an authority who is disqualified from being an arbitrator can be valid depending on the facts.On the other hand, an earlier decision delivered by a 2-judge bench headed by Justice Nariman in the case Bharat Broadband Network Ltd vs United Telecoms Ltd(April 2019) had held that he appointment of arbitrator by a person who himself is ineligible to be an arbitrator as per Section 12(5) of the Arbitration and Conciliation Act 1996 is void ab initio.On January 11, 2021, a three judge bench headed by Justice Nariman observed that it prima facie disagreed with the decision in Central Organisation for Railway Electrification vs.M/s ECI-SPIC-SMO-MCML (JV) A Joint Venture Company."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 toarbitration, it does not then follow that notwithstanding this yet appointments may be valid depending on the facts of the caseWe therefore request the Hon'ble Chief Justice to constitute a larger Bench to look into the correctness of this judgment", the bench ordered in the case Union of India v Tantia Constructions Ltd.The bench headed by Justice Rohinton Nariman was hearing the Centre's SLP against a March 12, 2020 judgment of the Calcutta High Court, where the High Court had noted that the provisions of Section 12(5) as well as Seventh Schedule of the Arbitration Act 1996 admittedly being squarely applicable to the case, the General manager of the Railway cannot appoint any existing Railway Officer as the Arbitrator to adjudicate the disputes and differences of the parties. Hearing an application under Section 11(6) of the Arbitration and Conciliation Act, 1996, the petitioner before the High Court had prayed for an order for constitution of the Arbitral Tribunal. The facts giving rise to the application were that the respondent, Metro Railway, Kolkata awarded a contract in favour of the petitioner to execute some civil engineering work. As per Clause 64 of the General Conditions of Contract dated February, 2001 published by the Eastern Railway Engineering Division, all disputes and differences arising between the parties would be adjudicated through arbitration.In view of the disputes and differences arising between the parties, by a letter dated March 5, 2018 addressed to the General Manager of the respondent, the petitioner invoked the arbitration clause. By a letter dated July 5, 2018 the General Manager of the respondent forwarded the panel of two names of SAG Gazetted Railway Officers and two SAG retired Railway Officers to the petitioner and requested the petitioner to nominate two names out of the said panel."At this juncture, it is to be noted that in view of the amendment in Section 12 of the Act of 1996 with effect from October 23, 2015 and incorporation of the Seventh Schedule to the same Act, any existing officer or employee of the railway cannot act as an Arbitrator...A copy of the application was served upon the respondent who was represented by learned counsel. However, the learned counsel appearing for the respondent, Metro Railway, Kolkata could not dispute the assertion made by the petitioner that by forwarding a panel comprising two existing Officers of the respondent, Metro Railway, Kolkata, the General Manager of the respondent Railway has in effect negated his right to appoint the Arbitrators", observed the High Court."Inspite of request made by the petitioner by the letter dated July 12, 2018, the General Manager of the respondent railway, being the appointing authority, did not prepare a fresh panel comprising persons who are not covered by any of the categories of the Seventh Schedule of the Act of 1996. After waiting for a period of thirty days from the date of receipt of said letter dated July 12, 2018 by the General Manager of the respondent railway, the petitioner has filed the present application. Therefore, this Application succeeds", said the High Court. The High Court allowed the application and appointed two former High Court judges as the nominee-arbitrators of each of the parties and one former Chief Justice of a High Court as the Presiding Arbitrator.Before the Apex Court on Monday, ASG K. M. Nataraj, for the Union of India through the Kolkata Metro...

Is Appointment Of Arbitrator By Ineligible Person Valid?Supreme Court Refers Issue To Larger Bench

Mehal Jain

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