TaxTMI 
TaxTMI 
2017 (9) TMI 675
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....re otherwise provided for in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions herein before mentioned and as to the quality of workmanship or materials used on the work or as to any other questions, claim, rights, matter or thing whatsoever in any way arising out of or relating to the contract, design, drawing, specifications, estimates, instructions, orders or these conditions of otherwise concerning the works, or the executions or failures to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the Sole Arbitration of the Project In-charge of the Project concerned of the owner, and if the Project In-charge is unable or unwilling to act, to the sole arbitration of some other persons appointed by the Chairman and Managing Director, NTPC limited (Formerly National Thermal Power Corporation Ltd) willing to act as such Arbitrator. There will be no objections, if the Arbitrator so appointed is an employee of NTPC Limited (Formerly National Thermal Power Corporation Ltd), and that he had to deal with the matters to which the contract re....
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....r nominee and both the nominee arbitrators appointing the Presiding/Umpire Arbitrator. We request that an early action in this regard may kindly be taken, in accordance with law." 4. In response, while refuting the allegations in the letter under reply, the Appellant proceeded to appoint its Chief Executive Officer as the sole Arbitrator on 19.08.2015 and intimated the respondent on the same day in following terms: "Please note that in terms of the Arbitration Clause 56 of the GCC there is no provision for selection by you of Arbitrator from any panel of Arbitrators to be offered by us. There is also no provision for formation of an Arbitral Tribunal as suggested by you. Clause 56 of the GCC envisaged the appointment of the designated officers as Arbitrator and accordingly the Chief Executives Officer APCPL on your request, has been designated as the Sole Arbitrator. The Learned Arbitrator shall inform you of the Arbitral proceedings in time." By further communication dated 26.09.2015 the Appellant reiterated its stand taken in letter dated 19.08.2015. 5. In the meanwhile, the Arbitrator so appointed fixed the first hearing in arbitration on 07.10.2....
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....as then intimated to attend proceedings in arbitration scheduled to be held on 16.02.2016. The Respondent however, approached the High Court of Delhi by filing petition under Section 14 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "1996 Act"), registered as OMP(T)(Comm.) No.13/2016, seeking termination of the mandate of the Arbitrator. Grounds I, IV, VI, VII and VIII raised in the petition were:- I It is submitted that it is a settled principle of law that nobody can be a judge in his own cause. In other words, a party to the Agreement cannot be an arbiter in his own cause. It is submitted that interest of justice and equity require that where a party to the contract disputes the committing of any breach of the condition, the adjudication should be by an independent person or body and not by the other party to the contract. IV That without prejudice to the above, it would also be relevant to mention herein that the allegedly appointed Arbitrator namely, Shri S.K. Sinha, would also be otherwise unable to perform the functions of an independent Arbitrator, in as much as, he has himself, in his official capacity in the respondent-company,....
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....nding payments. The cause of action further arose on 29.07.2015 when arbitration was invoked by the petitioner. The cause of action further arose, when the respondent erroneously and illegally rejected the petitioner's request for appointment of an independent Arbitral Tribunal, which cause of action is still subsisting and continuing since the respondent has failed to make the outstanding payment and to so appoint an independent Arbitral Tribunal." 10. On 01.03.2016 the High Court issued notice and stayed further proceedings in arbitration. The matter was contested by the Appellant submitting, inter alia, that the petition under Section 14 of 1996 Act was not maintainable; that the Arbitrator was appointed strictly in terms of Clause 56 of the GCC; and that though the Respondent was informed about appointment of the Arbitrator on 19.08.2015, no steps to challenge the appointment were undertaken within the time specified and in the manner prescribed under 1996 Act. 11. The High Court by its judgment and order under Appeal set aside the appointment of the Arbitrator and directed the Appellant to suggest names of three panel Arbitrators from different departments to the Respond....
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....independence or impartiality of arbitrators. No doubt, the invocation was about three months prior to amendment. But the Court has to keep in mind about the purpose and scope of the Act. 38. In the present case, no doubt, the invocation was on the basis of un-amended Act but still under Section 12 of the Act would give the similar indication. The sole Arbitrator appointed by the respondent admittedly is CEO and Executive of the respondent-Company who is also from the same office/department. In order to maintain the neutrality, or to avoid any doubt in the mind of the petitioner and the reasons given in the petition, it would be appropriate that independent sole Arbitrator should be appointed as ultimately neutral person has merely to decide the dispute between the parties. Even, the object and scope of the Act says so, that an arbitration procedure should be fair and unbias. Thus, the appointment of Mr. S.K. Sinha, CEO of the respondent Company is terminated and once the Arbitrator's appointment is terminated, the Court can consider the prayer of the petitioner." 12. The decision of the High Court is challenged by the Appellant and Mr. Vikas Singh, learned Senior Advoca....
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.... (3) An arbitrator may be challenged only if- (a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or (b) he does not possess the qualifications agreed to by the parties. (4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made. 13. Challenge procedure.- (1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator. (2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of section 12, send a written statement of the reasons for the challenge to the arbitral tribunal. (3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge. (4) If a challenge under any proc....
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....s under: "28. It is contended by the respondent that in view of the emphasis on the independence and impartiality of an arbitrator in the new Act and having regard to the basic principle of natural justice that no man should be judge in his own cause, any arbitration agreement to the extent it nominates an officer of one of the parties as the arbitrator, would be invalid and unenforceable. 30. We find no bar under the new Act, for an arbitration agreement providing for an employee of a Government/statutory corporation/public sector undertaking (which is a party to the contract), acting as an arbitrator. Section 11(8) of the Act requires the Chief Justice or his designate, in appointing an arbitrator, to have due regard to: "11. (8)(a) any qualifications required of the arbitrator by the agreement of the parties; and (b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator." 31. Section 12(1) requires an arbitrator, when approached in connection with his possible appointment, to disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impar....
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....ator undoubtedly is an employee of the Appellant but so long as there is no justifiable apprehension about his independence or impartiality, the appointment could not be rendered invalid and unenforceable. As held in the case of Indian Oil Corporation Ltd. (supra) mere fact that the arbitrator is an employee is not ipso facto a ground to raise any presumption of bias or partiality. It is not the case that there had not been any fair and correct disclosure. All that the Respondent alleged in its petition seeking termination of the mandate of the Arbitrator was, ".....he has himself in his official capacity in the Respondent-Company dealt with contracts of nature similar to the contract works in question...." The Respondent, while relying on the provisions of the Amendment Act had also submitted, ".... allegedly appointed individual is the Chief Executive Officer of the Respondent herein, who on account of such position also has the controlling influence over the Respondent-Company". At the same time, the High Court observed in Paragraph 13 of the judgment under appeal that the Arbitrator was not the Engineer In-charge or the day-to-day In-charge of the work and as a matter of fac....
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.... done. The Court must first ensure that the remedies provided for are exhausted. It is true as contended by Mr. Desai, that it is not mandatory for the Chief Justice or any person or institution designated by him to appoint the named arbitrator or arbitrators. But at the same time, due regard has to be given to the qualifications required by the agreement and other considerations. 13. The expression "due regard" means that proper attention to several circumstances have been focused. The expression "necessary" as a general rule can be broadly stated to be those things which are reasonably required to be done or legally ancillary to the accomplishment of the intended act. Necessary measures can be stated to be the reasonable steps required to be taken. 14. In all these cases at hand the High Court does not appear to have focused on the requirement to have due regard to the qualifications required by the agreement or other considerations necessary to secure the appointment of an independent and impartial arbitrator. It needs no reiteration that appointment of the arbitrator or arbitrators named in the arbitration agreement is not a must, but while making the....
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....ecording reasons for not following the agreed procedure of referring the dispute to the named arbitrator, appoint an independent arbitrator in accordance with Section 11(8) of the Act. In other words, referring the disputes to the named arbitrator shall be the rule. The Chief Justice or his designate will have to merely reiterate the arbitration agreement by referring the parties to the named arbitrator or named Arbitral Tribunal. Ignoring the named arbitrator/Arbitral Tribunal and nominating an independent arbitrator shall be the exception to the rule, to be resorted for valid reasons. 48. In the light of the above discussion, the scope of Section 11 of the Act containing the scheme of appointment of arbitrators may be summarised thus: (i) Where the agreement provides for arbitration with three arbitrators (each party to appoint one arbitrator and the two appointed arbitrators to appoint a third arbitrator), in the event of a party failing to appoint an arbitrator within 30 days from the receipt of a request from the other party (or the two nominated arbitrators failing to agree on the third arbitrator within 30 days from the date of the appointment), the Chief J....
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....n under the agreed appointment procedure, failing to perform such function. (vi) The Chief Justice or his designate while exercising power under sub-section (6) of Section 11 shall endeavour to give effect to the appointment procedure prescribed in the arbitration clause. (vii) If circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the person nominated, or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, the Chief Justice or his designate may, for reasons to be recorded ignore the designated arbitrator and appoint someone else." Thus, as laid down in sub-para (v) of para 48, unless the cause of action for invoking jurisdiction under Clauses (a), (b) or (c) of sub-section (6) of Section 11 of 1996 Act arises, there is no question of the Chief Justice or his designate exercising power under sub-section (6) of Section 11. D. In Denel (Proprietary) Limited v. Bharat Electronics Limited and Another (2010) 6 SCC 394, though the arbitration agreement provided that all disputes be referred to the Managing Director or his nominee for arbitration, thi....
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....ry qualifications required of the arbitrator by the agreement of the parties, the Court shall have due regard to other considerations as are likely to ensure the appointment of an independent and impartial arbitrator. Keeping in view the aforesaid provision, this Court in Indian Oil Corpn. Ltd, whilst emphasizing that normally the Court shall make the appointment in terms of the agreed procedure, has observed that the Chief Justice or his designate may deviate from the same after recording reasons for the same........" F. In Union of India and Others v. Uttar Pradesh State Bridge Corporation Limited (2015) 2 SCC 52, an arbitral tribunal consisting of three Gazetted Railway Officers was constituted in the year 2007 and despite four years having passed, the matter was not getting concluded. In the circumstances, while accepting the petition for setting aside the mandate of the tribunal the High Court had appointed a retired Chief Justice as the sole arbitrator. While considering the grievance that such appointment was beyond the concerned arbitration clause, this Court observed:- "12. As is clear from the reading of Section 14, when there is a failure on the part of....
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....classical notion" has been made are taken note of..................." G. In Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Limited (2017) 4 SCC 665, the relevant clause contemplated that the disputes be settled by three arbitrators from and out of a list of five engineers supplied by the respondent therein. The appellant had invoked arbitration on 14.06.2016 i.e. after the amending Act. When the list of five persons comprising of serving officers was supplied by the respondents, an objection was taken that such procedure would lead to appointment of "illegal persons" in view of Section 12(5) read with Clause 1 of Schedule 7 of the Act. This Court considered that Section 12 of the Act was amended pursuant to the recommendations by the Law Commission which specifically dealt with the issue of "neutrality of arbitrators", and observed that if the arbitration clause finds foul with the amended provisions, the appointment of the Arbitrator even if apparently in conformity with the arbitration clause in the agreement, would be illegal and thus the Court would be within its powers to appoint such arbitrator(s) as may be permissible. Paragraph 18 sums up this a....
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....n 11(6) were satisfied, in the exercise of consequential power under Section 11(8), the Court had on certain occasions gone beyond the scope of the concerned arbitration clauses and appointed independent arbitrators. What is clear is, for exercise of such power under Section 11(8), the case must first be made out for exercise of jurisdiction under Section 11(6). 22. The principles which emerge from the decisions referred to above are:- A. In cases governed by 1996 Act as it stood before the Amendment Act came into force:- (i) The fact that the named arbitrator is an employee of one of the parties is not ipso facto a ground to raise a presumption of bias or partiality or lack of independence on his part. There can however be a justifiable apprehension about the independence or impartiality of an employee arbitrator, if such person was the controlling or dealing authority in regard to the subject contract or if he is a direct subordinate to the officer whose decision is the subject-matter of the dispute. (ii) unless the cause of action for invoking jurisdiction under Clauses (a), (b) or (c) of sub-section (6) of Section 11 of 1996 Act arises, there is no....