2023 (11) TMI 1397 - HC - Indian Laws

Petition dismissed: respondent-nominated arbitrator valid under Section 12(5); alleged grounds not 'justifiable doubts' under Schedules

JRE Infra Private Limited Versus Deendayal Port Authority

The HC dismissed the petition challenging the respondent-nominated arbitrator, holding the nomination did not contravene Section 12(5) of the Arbitration ... Applicability of Section 12 and 14 of the Arbitration and Conciliation Act, 1996 - nomination made by the respondent No. 1, original claimant is contrary to the provisions of Section 12(5) of the Act, 1996 - HELD THAT:- A perusal of the judgment and order passed by the Division Bench of this Court (on record) of which the nominated Arbitrator had been a member, indicates that challenge in the said case was to a common order passed by the Commercial Tribunal on a challenge to the interim order passed by the Arbitral Tribunal. The Division Bench while dealing with the merits of the interim order noted that insofar as the challenge to the interim order dated 04.12.2017 passed by the Arbitral Tribunal, the petitioner, i.e. the original claimant therein accepted the said order unconditionally and deposited the entire amount in compliance without any demur. Clarificatory orders dated 19.12.2017 and 23.12.2017 were passed thereafter and the petitioner did not raise any challenge. It was, thus, not open for the petitioner therein to challenge the interim order dated 04.12.2017, which was passed considering the relevant clauses of the concession agreement and correspondences between the parties. It was held that the tribunal was justified in passing the interim order dated 04.12.2017, which was subject to the award finally to be made by the tribunal. The Court, thus, refused to interfere with the order dated 04.12.2017 which was passed by way of an interim measure. The proposed Arbitrator or the nominated Arbitrator, who had decided the issue before him in the capacity of a Judge of this Court, cannot be said to have any involvement in the case. The only ground taken by the petitioner to raise doubt as to the independence and impartiality of the nominated Arbitrator, would not fall within the meaning of “Justifiable doubts”. The nominated Arbitrator cannot be held to be ineligible under Section 12(5) of the Act, 1996. From the facts of the instant case, it cannot be accepted that the nominated Arbitrator who once serving as a Judge of this Court dealt with the issue as to the validity of an interim order passed by the previous Arbitral Tribunal, would be disqualified under Item No. 16 of the Fifth (‘V’) Schedule as contained in Part-1 of the Act, 1996. The apprehension raised by the petitioner about the independence and impartiality of the nominated Arbitrator, not falling within the meaning of “justifiable doubts” as occurring in Fifth (‘V’) Schedule and Seventh (‘VII’) Schedule, cannot be said to be justifiable and as such is unsustainable. The present petition seeking to declare the Arbitrator nominated by the respondent no. 1 as disqualified and replace the said Arbitrator is dismissed as misconceived. ISSUES PRESENTED AND CONSIDERED 1. Whether the nominee proposed by a party to act as arbitrator is ineligible under Section 12(5) of the Arbitration and Conciliation Act, 1996 because of 'previous involvement in the case' as reflected in Item 16 of the Seventh (VII) Schedule (and pari materia Item 16 of the Fifth (V) Schedule). 2. Whether facts that the proposed arbitrator earlier participated as a member of a judicial Bench that adjudicated challenges arising out of earlier interim orders of the same arbitral proceedings constitute 'previous involvement in the case' within Item 16 and thereby give rise to justifiable doubts as to independence and impartiality. 3. If Item 16 or related schedule entries do not render the arbitrator ineligible, whether the existence of asserted 'justifiable doubts' nevertheless requires recusal, replacement by the Court, or adjudication under Section 13 by the arbitral tribunal before continuation. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Eligibility under Section 12(5) and Item 16 of the VII Schedule Legal framework: Section 12(5) renders an arbitrator ineligible if he falls within categories specified in the Seventh Schedule; Section 14(1)(a) deems an arbitrator unable to perform functions if ineligible. Item 16 of the V and VII Schedules states: 'The arbitrator has previous involvement in the case.' Precedent treatment: The Court relied on the authoritative interpretation in HRD Corporation (Marcus Oil and Chemical Division) v. GAIL, which construes Item 16 as referring to prior involvement in 'the very dispute contained in the present arbitration' and not to generic or related prior engagements; and distinguished other authorities emphasizing independence and disclosure (Perkins Eastman; Voestapline). Interpretation and reasoning: The Court examined the prior role of the proposed arbitrator - membership of a judicial Bench that decided writ petitions challenging interim orders made by the arbitral tribunal. The Court held that judicial adjudication of challenges to tribunal interim orders does not amount to prior involvement in the dispute in the sense contemplated by Item 16 (i.e., advisory or other non-judicial involvement in the same dispute). The phrasing and heading 'Relationship of the arbitrator to the dispute' and the jurisprudence indicate Item 16 targets previous advisory, expert or partisan roles, not prior judicial adjudication. Ratio vs. Obiter: Ratio - Item 16 does not encompass a judge's prior adjudication on writ petitions connected to interim orders of the same arbitration such that the judge would be ineligible as an arbitrator under Section 12(5). Obiter - observations on the limits of legal-advice versus advisory roles in other contexts, to the extent not essential to the specific adjudicated facts. Conclusion: The nominated arbitrator is not ineligible under Section 12(5) read with Item 16 of the VII Schedule by reason of prior participation as a member of a judicial Bench that ruled on challenges arising from the arbitration's interim orders. Issue 2 - Whether prior judicial participation gives rise to 'justifiable doubts' as to independence and impartiality Legal framework: The standard of 'justifiable doubts' as to independence and impartiality is applied objectively - whether a reasonable third person, apprised of relevant facts, would conclude there is a likelihood the arbitrator may be influenced by factors other than the merits (IBA-inspired standards reflected in the Schedules and discussed in Perkins Eastman and Voestapline). Section 13 provides the mechanism for challenges based on such doubts. Precedent treatment: The Court considered Perkins Eastman and Voestapline emphasizing independence and impartiality and the HRD Corporation analysis of the IBA-derived Red/Orange/Green lists and their applicability to eligibility and disclosure. Interpretation and reasoning: The Court found that the prior judicial decision in respect of interim orders involved adjudication on legality and procedure (one order upheld, one set aside for lack of hearing). The judge's earlier role did not amount to partisan involvement, advisory capacity, or factual participation in the dispute; it was judicial determination on challenges. Given that character, a reasonable third person would not have justifiable doubts about the nominee's impartiality and independence in the subsequent arbitral role. The petitioner's apprehensions were held to be speculative and not meeting the objective 'justifiable doubts' threshold embodied in the Schedules. Ratio vs. Obiter: Ratio - Prior judicial adjudication of related procedural/interim challenges does not, without more, create justifiable doubts under the objective standard; such doubts must be grounded in previous involvement of the type described in the Schedules or facts pointing to probable bias. Obiter - remarks distinguishing types of previous professional relationships that could give rise to justifiable doubts (e.g., advisory or business ties). Conclusion: The facts did not establish justifiable doubts as to the proposed arbitrator's independence or impartiality; therefore recusal or disqualification on this ground is unwarranted. Issue 3 - Procedural consequences: recusal, replacement, or challenge under Section 13 and Section 34 Legal framework: If the arbitrator falls within non-waivable categories, he is ineligible (Section 12(5)); otherwise, Section 13 empowers the arbitral tribunal to decide challenges based on justifiable doubts, and Section 34 permits setting aside of an award on specified grounds post-award. HRD Corporation pronounces that where schedule grounds are pleaded but facts are contested, the tribunal should determine factual doubts under Section 13 and continue proceedings if challenge fails; only after an award can Section 34 be invoked. Precedent treatment: The Court relied on HRD Corporation for the procedural sequence and Perkins Eastman/Voestapline for the standards to be applied in determining challenges. Interpretation and reasoning: Because the nominated arbitrator was not ineligible under the Schedule (Issue 1) and no objectively justifiable doubt was established (Issue 2), there was no basis for court-ordered replacement. The Court observed that where schedule-based ineligibility is not triggered, the mechanisms in Section 13 remain the route for factual determination of alleged doubts; but here substantive facts did not require invoking Section 13 to disqualify the arbitrator. The petition seeking disqualification/replacement was therefore dismissed as misconceived. Ratio vs. Obiter: Ratio - Where schedule items do not apply and objective justifiable doubts are absent, neither recusal nor court replacement is required; challenges, if any, fall to be determined under Section 13 by the tribunal and, ultimately, by Section 34 after an award. Obiter - description of the procedural posture when an arbitral tribunal must decide disclosed grounds and the sequence clarifying that a failed Section 13 challenge does not preclude later Section 34 relief. Conclusion: The Court declined to replace the nominated arbitrator; the correct course when eligibility under the Schedules is not established is tribunal adjudication under Section 13 and, if necessary, remedy under Section 34 post-award. The petition seeking disqualification was dismissed as misconceived. Cross-references See Issue 1 for the Court's application of HRD Corporation to the meaning of 'previous involvement in the case' under Item 16; see Issue 2 for the application of the objective 'justifiable doubts' standard derived from IBA-informed Schedules and precedents such as Perkins Eastman and Voestapline; see Issue 3 for the procedural sequencing mandated by Section 13 and Section 34 as explicated in HRD Corporation.