Contractual arbitration clauses and non-retrospective disqualification rules shape when courts may replace an agreed arbitrator.

Where parties have contractually chosen the Managing Director or his nominee as arbitrator, courts should ordinarily respect that appointment mechanism unless a legally sustainable ground of bias, ineligibility or failure of mandate is shown. The text states that participation in the proceedings and acceptance of the process may estop a party from later seeking an independent arbitrator on that basis. It also says Section 12(5) of the 2015 amendment was treated as not retrospectively invalidating arbitral proceedings that had already commenced before the amendment, and that delay alone is not enough to displace the agreed arbitral forum without recourse to the proper statutory remedy.

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Issues: (i) Whether, despite a contractual clause providing for arbitration by the Managing Director or his nominee and the respondent's participation in the proceedings, the High Court could appoint an independent arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996. (ii) Whether Section 12(5) of the Arbitration and Conciliation (Amendment) Act, 2015 rendered the Managing Director ineligible to act as arbitrator in arbitral proceedings that had commenced before the amendment. (iii) Whether the High Court was justified in terminating the mandate of the agreed arbitrator and appointing a substitute arbitrator on the ground of delay, and whether the award passed during the pendency of the petition was liable to be set aside.

Issue (i): Whether, despite a contractual clause providing for arbitration by the Managing Director or his nominee and the respondent's participation in the proceedings, the High Court could appoint an independent arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996.

Analysis: The arbitration agreement expressly contemplated reference of disputes to the Managing Director or his nominee. The respondent had participated in the arbitral proceedings for a considerable period, had accepted the process, and had expressed faith in the arbitrator. In these circumstances, the High Court could not disregard the agreed mechanism merely because the named arbitrator was an employee of the corporation, absent material showing a justifiable apprehension of bias or lack of impartiality. The respondent was held to be bound by the contractual arrangement and estopped from seeking an independent arbitrator on that basis.

Conclusion: The High Court was not justified in appointing an independent arbitrator; this issue was decided in favour of the appellant.

Issue (ii): Whether Section 12(5) of the Arbitration and Conciliation (Amendment) Act, 2015 rendered the Managing Director ineligible to act as arbitrator in arbitral proceedings that had commenced before the amendment.

Analysis: The proceedings had commenced in 2009, long before the 2015 amendment. The amended disqualification regime was held not to apply retrospectively to pending arbitral proceedings unless the parties otherwise agreed. The Court distinguished cases where arbitration was invoked after the amendment and held that those principles did not govern the present dispute.

Conclusion: Section 12(5) did not render the Managing Director ineligible in the present proceedings; this issue was decided in favour of the appellant.

Issue (iii): Whether the High Court was justified in terminating the mandate of the agreed arbitrator and appointing a substitute arbitrator on the ground of delay, and whether the award passed during the pendency of the petition was liable to be set aside.

Analysis: Mere delay by itself was held insufficient to justify departure from the agreed arbitral mechanism in the absence of a proper application showing failure to act under the statutory scheme. Although the arbitral proceedings had been prolonged and the award was passed after the High Court petition was filed, the Court found that the respondent had not pursued the statutory remedy of seeking termination of mandate on appropriate grounds. At the same time, the Court held that the award had been hurriedly passed without adequate opportunity after the High Court proceedings were pending and, to do complete justice, exercised power under Article 142 of the Constitution of India to set aside the award and direct continuation of the arbitration by the Managing Director with full opportunity to both sides.

Conclusion: The High Court was not justified in terminating the mandate and appointing a substitute arbitrator, and the award dated 21.01.2016 was set aside; this issue was substantially decided in favour of the appellant.

Final Conclusion: The appeal succeeded. The order appointing an independent arbitrator was set aside, the agreed arbitral mechanism was restored, and the matter was directed to proceed before the Managing Director as sole arbitrator with a fresh opportunity to both parties.

Ratio Decidendi: Where parties have contractually chosen a named arbitrator or a specified appointment mechanism, courts should ordinarily give effect to that bargain unless a legally sustainable ground for ineligibility, bias, or termination of mandate is shown, and a subsequent statutory disqualification will not retrospectively upset arbitral proceedings already commenced.

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