2021 (1) TMI 1210 - SC - Indian Laws

Supreme Court appoints new arbitrator, emphasizes speedy resolution

Ellora Paper Mills Limited Versus The State of Madhya Pradesh

The Supreme Court allowed the appeal, quashed the High Court's order, and declared that the originally constituted Arbitral Tribunal had lost its mandate ... Seeking termination of the mandate of originally constituted Arbitral Tribunal - Seeking to appoint a new arbitrator - Section 14 read with Sections 11 and 15 of the Arbitration and Conciliation Act, 1996 - HELD THAT:- The Arbitral Tribunal – Stationery Purchase Committee consisted of officers of the respondent-State. Therefore, as per Amendment Act, 2015 – Sub-section (5) of Section 12 read with Seventh Schedule, all of them have become ineligible to become arbitrators and to continue as arbitrators. Section 12 has been amended by Amendment Act, 2015 based on the recommendations of the Law Commission, which specifically dealt with the issue of “neutrality of arbitrators”. To achieve the main purpose for amending the provision, namely, to provide for “neutrality of arbitrators”, 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. In such an eventuality, i.e., when the arbitration clause is found to be foul with the amended provision, the appointment of the arbitrator would be beyond the pale of the arbitration agreement, empowering the Court to appoint such an arbitrator as may be permissible. It cannot be disputed that in the present case, the Stationery Purchase Committee -Arbitral Tribunal comprising of officers of the respondent-State are all ineligible to become and/or to continue as arbitrators in view of the mandate of sub-section (5) of Section 12 read with Seventh Schedule. Therefore, by operation of law and by amending Section 12 and bringing on statute sub-section (5) of Section 12 read with Seventh Schedule, the earlier Arbitral Tribunal – Stationery Purchase Committee comprising of Additional Secretary, Department of Revenue as President and (i) Deputy Secretary, Department of Revenue, (ii) Deputy Secretary, General Administration Department, (iii) Deputy Secretary, Department of Finance, (iv) Deputy Secretary/Under Secretary, General Administration Department and (v) Senior Deputy Controller of Head Office, Printing as Members, has lost its mandate and such an Arbitral Tribunal cannot be permitted to continue and therefore a fresh arbitrator has to be appointed as per Arbitration Act, 1996. This Court also negatived the submission that as the contractor participated in the arbitration proceedings before the arbitrator therefore subsequently, he ought not to have approached the High Court for appointment of a fresh arbitrator under Section 11 of the Arbitration Act, 1996. Appeal allowed. Issues Involved:1. Termination of the mandate of the originally constituted Arbitral Tribunal.2. Appointment of a new arbitrator.3. Applicability of Section 12(5) of the Arbitration and Conciliation Act, 1996, as amended in 2015.4. Retrospective application of the Amendment Act, 2015.Issue-wise Detailed Analysis:1. Termination of the Mandate of the Originally Constituted Arbitral Tribunal:The appellant sought the termination of the mandate of the originally constituted Arbitral Tribunal, the Stationery Purchase Committee, comprising officers of the respondent. The appellant argued that the members of the Committee had become ineligible to continue as arbitrators under Section 12(5) of the Arbitration Act, 1996, as amended in 2015. The High Court dismissed the application, stating that the Amendment Act, 2015, does not apply retrospectively to arbitration proceedings that commenced before the amendment.2. Appointment of a New Arbitrator:The appellant requested the appointment of a new arbitrator, contending that the original members of the Arbitral Tribunal had ceased to hold their respective offices. The High Court, however, held that the existing Arbitral Tribunal should continue, as the Amendment Act, 2015, does not apply retrospectively.3. Applicability of Section 12(5) of the Arbitration and Conciliation Act, 1996:The appellant relied on the Supreme Court's decision in TRF Limited v. Energo Engineering Projects Limited, arguing that the officers of the respondent, who constituted the Arbitral Tribunal, were ineligible to continue as arbitrators under Section 12(5) of the Arbitration Act, 1996. The High Court did not agree with this submission, citing that the Amendment Act, 2015, does not have retrospective effect.4. Retrospective Application of the Amendment Act, 2015:The High Court held that the Amendment Act, 2015, which introduced Section 12(5) to ensure the neutrality of arbitrators, does not apply retrospectively to arbitration proceedings that commenced before the amendment. Therefore, the originally constituted Arbitral Tribunal could continue its proceedings.Supreme Court's Analysis and Judgment:Termination of the Mandate:The Supreme Court observed that the Arbitral Tribunal, comprising officers of the respondent, had become ineligible to continue as arbitrators under Section 12(5) of the Arbitration Act, 1996, as amended in 2015. The Court noted that the amendment aimed to ensure the neutrality of arbitrators, and the officers of the respondent could not continue as arbitrators due to their relationship with the parties.Appointment of a New Arbitrator:The Supreme Court held that a fresh arbitrator must be appointed under the provisions of the Arbitration Act, 1996. The Court appointed Justice Abhay Manohar Sapre, a former Judge of the Supreme Court, as the new arbitrator to adjudicate and resolve the dispute between the parties.Applicability of Section 12(5):The Supreme Court referred to its previous decisions, including Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited v. Ajay Sales & Suppliers, and reiterated that Section 12(5) of the Arbitration Act, 1996, applies notwithstanding any prior agreement to the contrary. The Court emphasized that the provision ensures the neutrality of arbitrators, and any person whose relationship with the parties falls under the categories specified in the Seventh Schedule is ineligible to be appointed as an arbitrator.Retrospective Application:The Supreme Court disagreed with the High Court's view that the Amendment Act, 2015, does not apply retrospectively. The Court held that the amendment applies to ongoing arbitration proceedings, ensuring that arbitrators are neutral and independent. The Court quashed the High Court's order and allowed the appellant's application for the termination of the mandate of the originally constituted Arbitral Tribunal.Conclusion:The Supreme Court allowed the appeal, quashed the High Court's order, and declared that the originally constituted Arbitral Tribunal had lost its mandate under Section 12(5) of the Arbitration Act, 1996. The Court appointed Justice Abhay Manohar Sapre as the new arbitrator and directed the parties to appear before him within four weeks. The Court emphasized the importance of concluding the arbitration proceedings expeditiously, considering the long-pending dispute.