2025 (1) TMI 1613 - HC - Indian Laws

Appointment of previously adjudicating sole arbitrator under Section 11 allowed despite pending Section 34 challenge and Fifth/Seventh Schedule issues

HC allowed appointment of the previously adjudicating sole arbitrator to decide the disputes under Section 11 of the Arbitration and Conciliation Act, ... Seeking appointment of an arbitrator to refer the disputes and differences being raised by the Applicant - Section 11 of the Arbitration and Conciliation Act, 1996 - HELD THAT:- The case at hand would not fall within any of the conceptual positions of potential non-independence or partiality that these Items of the Fifth Schedule stipulate – because, in the instant case, the arbitrator has acted in the past, not as a partisan advisor, but as an independent arbitrator. In fact, it is the very same Learned Sole Arbitrator who has neutrally interpreted the parties’ position in the earlier round. It is indeed true that a Petition under Section 34 challenging the earlier award dated March 3, 2023, has been filed in this Court, but that would not mean that the arbitrator is not impartial or not independent. Consequently, also taking into account the explicit submission that Respondent No.2 does not intend to state that Learned Sole Arbitrator is de jure ineligible to act as an arbitrator under the Seventh Schedule, I do not see how the Learned Counsel for Respondent No. 2 drawing my attention to Item 15 and 26 of the Fifth Schedule, should alter my inclination to refer the parties to arbitration by the very same arbitrator. This Petition is finally disposed of appointing Justice (Retd.) Akil Kureshi as the Sole Arbitrator, who was the arbitrator who had adjudicated in the earlier round. 1. ISSUES PRESENTED AND CONSIDERED Whether an application under Section 11 of the Arbitration and Conciliation Act, 1996 should be granted to appoint an arbitrator where the existence of an arbitration agreement is not disputed but (a) one respondent contends constructive res judicata arising from an earlier arbitration and award, (b) one respondent invokes provisions of the Fifth Schedule as disqualifying the same arbitrator, and (c) certain respondents contend the reference is premature for want of a crystallised default. Whether the same arbitrator who presided over an earlier arbitration between the parties can be appointed again in a subsequent arbitration arising out of the same agreement, having regard to Items 15, 16, 24 (and related items) of the Fifth Schedule and the disclosure/ineligibility regime under Sections 12 and the Seventh Schedule. Whether a Section 11 court may adjudicate merits-based defences (constructive res judicata, prematurity of invocation) when deciding an appointment application, or whether such matters must be left to the arbitral tribunal. What guidance the Fifth Schedule items (notably Items 16 and 24) furnish as to disclosure and perceived impartiality where the proposed arbitrator has earlier acted as an independent arbitrator in a related dispute, and the extent to which Supreme Court authority on the subject informs the Section 11 court's decision. 2. ISSUE-WISE DETAILED ANALYSIS Issue A - Scope of Section 11 court when existence of arbitration agreement is admitted but merits-based objections are raised (constructive res judicata; prematurity). Legal framework: Section 11(6A) confines the Section 11 court's inquiry predominantly to existence of an arbitration agreement; the court's role is not to decide merits of disputes better left to the arbitral tribunal. Precedent treatment: The Court relied on the settled principle, reiterated by higher courts, that a Section 11 court should not traverse merit issues beyond determining existence of an arbitration agreement. Interpretation and reasoning: The objections that the present claims were or could have been raised in earlier arbitration (constructive res judicata) and that invocation is premature (no crystallised default) are essentially merits contentions. On the face of the earlier award, declaratory relief sought by the earlier claimant was rejected and the earlier proceedings did not prima facie adjudicate the present cause of action of recovery/invocation of guarantee. The court observed that whether the present cause of action is barred or premature are issues appropriately determined by the tribunal. The correct course is to refer parties to arbitration so the tribunal can adjudicate these defences. Ratio vs. Obiter: Ratio - Section 11 courts must refrain from deciding merits-based defences such as constructive res judicata and prematurity; such defences should be left to the arbitral tribunal once appointed. Obiter - observations on how the prior award treated certain rights are explanatory and not dispositive of res judicata. Conclusion: The Section 11 court should not refuse appointment on the basis of the raised merits defences; a reference is appropriate where an arbitration agreement exists and respondents refuse to arbitrate. Issue B - Whether the same arbitrator who decided an earlier arbitration can be appointed again in a subsequent arbitration involving the same parties and related issues, in light of the Fifth Schedule (Items 15, 16, 24 and related items) and the disclosure regime under Section 12. Legal framework: The Fifth Schedule provides non-exhaustive guidance for disclosures under Section 12(1) concerning relationships, interests and prior involvement likely to give rise to justifiable doubts as to independence or impartiality. Items 20-24 address prior services or involvement within three years; Item 15 concerns prior advice/expert opinion; Item 16 concerns 'relationship of arbitrator to the dispute' and prior involvement. The Seventh Schedule contains de jure ineligibility provisions. Precedent treatment: The court followed and applied the Supreme Court's interpretation (HRD Corporation) that Item 16 must be harmoniously read with Items 22 and 24 and that 'previous involvement' in Item 16 refers to advisory or other non-arbitral roles in the same dispute, not to prior service as arbitrator. The Supreme Court held that delivery of an award as arbitrator does not constitute a disqualifying business relationship or advice under Items 1 or 15. Interpretation and reasoning: The court analysed Items 15 and 16 as species of a single genus; Item 15 contemplates advice/expert opinion to a party, thereby illuminating that Item 16's 'involvement' refers to involvement other than serving as arbitrator. The court rejected the contention that prior service as arbitrator constitutes the kind of involvement disqualifying under Item 16. Item 24 targets situations where an arbitrator has served in another arbitration on a related issue involving a party within three years and could have formed a view creating a justifiable doubt; it is principally a disclosure guideline to permit parties to draw inferences of predisposition. The court held that prior neutral adjudication as an arbitrator does not, by itself, create an appearance of non-independence or partiality covered by these items, particularly where no de jure ineligibility under the Seventh Schedule is pleaded. Policy considerations: appointing the same arbitrator economises costs and leverages the arbitrator's familiarity with the agreement and issues; construing Items 16 or 24 to bar such appointment would unduly frustrate the arbitration process and require an implausible reading of the Schedule items. Ratio vs. Obiter: Ratio - Prior service as an independent arbitrator on related matters does not, without more, render the arbitrator disqualified under Items 15, 16 or 24 of the Fifth Schedule or the disclosure regime; such prior service must be disclosed and any actual or perceived predisposition examined by the arbitral tribunal. Obiter - wider commentary on the policy benefits of repeat appointment and economising costs. Conclusion: The Fifth Schedule items do not preclude appointing the same neutral arbitrator who adjudicated the earlier round; the proposed arbitrator is not de jure ineligible under the Seventh Schedule and any concerns about impartiality/independence are matters for disclosure and determination by the tribunal (and can be raised before it). Accordingly, appointment of the same arbitrator was appropriate. Issue C - Proper practical course and directions where appointment is ordered despite prior arbitration and pending challenge to earlier award. Legal framework: Section 11 permits appointment of arbitrator; the Fifth and Seventh Schedules and Section 12 govern disclosure and (in)eligibility; challenges to awards under Section 34 do not ipso facto disqualify an arbitrator from fresh appointment unless Seventh Schedule disqualifications apply. Precedent treatment: The court relied on established authority that prior challenges under Section 34 do not automatically impugn an arbitrator's impartiality for subsequent appointments, absent de jure ineligibility. Interpretation and reasoning: Given no contention of de jure ineligibility and the settled meaning of Fifth Schedule items, the court directed appointment of the same sole arbitrator and instructed parties to approach him within a short period so directions for further conduct may be issued. The court declined to decide merits, reserved all substantive objections for the tribunal, and declined to impose costs. Ratio vs. Obiter: Ratio - Where criteria in the Fifth and Seventh Schedules are not triggered, the Section 11 court may appoint the same arbitrator; pending Section 34 proceedings do not bar such appointment. Obiter - directions on timelines and statements about not imposing costs. Conclusion: The appropriate practical course is to appoint the same arbitrator, allow parties to present all substantive defences (including constructive res judicata and prematurity) to the tribunal, and proceed under the arbitrator's directions; pending challenges to prior awards do not preclude such appointment absent specific disqualifying circumstances.