TaxTMI 
TaxTMI 
2022 (1) TMI 1513
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....aid tender process and was awarded the contract vide supply order dated 22.09.1993. A dispute arose between the appellant and the respondent. According to the appellant herein, though it supplied 420 MT of cream wove paper and 238 MT of duplicating paper to the respondent, the latter not only did not make the payment of 90% of the amount as per the terms of the contract, but also rejected some consignments without any justification, causing loss to it. The respondent herein vide letter dated 15.11.1993 informed the appellant that the paper supplied by it did not conform to the specification and therefore could not be utilized. 2.1 Thereafter, the appellant herein filed a civil suit in the year 1994 seeking the relief of permanent injunction against the respondent in the Civil Court at Bhopal seeking to restrain it from awarding the supply order to a third party. The respondent, in the meantime, awarded the contract to the third party for the remaining supply. Therefore, the aforesaid civil suit became infructuous. 2.2 The appellant thereafter filed another suit seeking recovery of an amount of Rs.95,32,103/- bearing Civil Suit No. 2-B/1998 before the Civil Court at Bhopal. In....
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....s ineligible to continue as arbitrators. It was submitted that since they had become ineligible to continue as arbitrators, they also could not appoint another person as arbitrator. It was also contended that the original members of the Arbitral Tribunal, who initiated the proceedings had since ceased to hold their respective offices, in any case, a new Arbitral Tribunal had to be constituted and therefore an impartial and independent arbitrator was required to be appointed in terms of Section 11 of the Arbitration Act, 1996. 2.6 However, after referring to and considering the decisions of this Court in the cases of Aravali Power Co. Power Ltd. v. Era Infra Engineering, reported in (2017) 15 SCC 32; Indian Oil Corporation Ltd. v. Raja Transport Pvt. Ltd., reported in (2009) 8 SCC 520; ACE Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corpn. Ltd., reported in (2007) 5 SCC 304; Union of India v. M.P. Gupta, reported in (2004) 10 SCC 504; Union of India v. Parmar Construction Company, reported in (2019) 15 SCC 682; Union of India v. Pradeep Vinod Construction Company, reported in (2020) 2 SCC 464; and S.P. Singla Constructions Pvt. Ltd. v. State of Himachal Pradesh, reported in (....
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....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. 3.1 It is submitted that in the aforesaid decision, this Court negatived the submission that once the contractor participated in the arbitration proceedings before the Arbitral Tribunal by filing a statement of claim, thereafter it would not be open for him to approach the Court invoking sub-section (5) to Section 12 and pray for appointment of a fresh Arbitral Tribunal. It is submitted that unless and until there is an express agreement in writing to continue with the arbitration proceedings by the earlier Arbitral Tribunal, such an application to terminate the mandate of the earlier Arbitral Tribunal and to appoint a fresh arbitrator would be maintainable. 3.2 It is further submitted by the learned counsel appearing on behalf of the appellant that in the present case, as such, the High Court has committed a grave error in observing and holding that the arbitration proceedings before the Stationery Pu....
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....the Arbitration Act, 2015. However, in the present case, the arbitrator was appointed approximately 20 years prior thereto and thereafter the arbitration proceedings commenced and even the appellant also participated. It is therefore contended that the amended Section 12(5) of the Arbitration Act which is brought in the statute by way of amendment in 2015 shall not be applicable retrospectively. It is submitted that Section 12(5) of the Arbitration Act shall have to be made applicable prospectively. 5. We have heard the learned counsel for the respective parties at length. Having heard learned counsel for the respective parties and on considering the impugned judgment and order passed by the High Court, the short question which is posed for consideration of this Court is, whether, the Stationery Purchase Committee - Arbitral Tribunal consisting of the officers of the respondent has lost the mandate, considering Section 12(5) read with Seventh Schedule of the Arbitration Act, 1996. If the answer is in the affirmative, in that case, whether a fresh arbitrator has to be appointed as per the Arbitration Act, 1996? 6. It is not in dispute that the High Court earlier constituted th....
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....ing 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. That would be the effect of the non obstante clause contained in sub-section (5) of Section 12 and the other party cannot insist upon the appointment of the arbitrator in terms of the arbitration agreement. 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 a....
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....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. It is further observed that in such an eventuality i.e. when the arbitration clause finds foul with the amended provisions (Sub-section (5) of Section 12 read with Seventh Schedule) the appointment of an arbitrator would be beyond pale of the arbitration agreement, empowering the court to appoint such arbitrator as may be permissible. It is further observed that, that would be the effect of non obstante clause contained in sub-section (5) of Section 12 and the other party cannot insist on appointment of the arbitrator in terms of the arbitration agreement. 14. It is further observed and held by this Court in the aforesaid decision that independence and impartiality of the arbitrator are the hallmarks of any arbitration proceedings. Rule against bias is one of the fundamental principles of natural justice which apply to all judicial and quasi-judicial proceedings. It is further observed that it is for this reason that notwithstanding the fact that relationship between the parties, to the arbitration and the arbitrators themselve....
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....v. Munusamy Mudaliar, 1988 Supp SCC 651; International Authority of India v. K.D. Bali, (1988) 2 SCC 360; S. Rajan v. State of Kerala, (1992) 3 SCC 608; Indian Drugs & Pharmaceuticals v. Indo-Swiss Synthetics Germ Manufacturing Co. Ltd., (1996) 1 SCC 54; Union of India v. M.P. Gupta, (2004) 10 SCC 504; Ace Pipeline Contract Pvt. Ltd. v. Bharat Petroleum Corporation Ltd., (2007) 5 SCC 304) that arbitration agreements in government contracts which provide for arbitration by a serving employee of the department, are valid and enforceable. While the Supreme Court, in Indian Oil Corp. Ltd. v. Raja Transport (P) Ltd., (2009) 8 SCC 520 carved out a minor exception in situations when the arbitrator "was the controlling or dealing authority in regard to the subject contract or if he is a direct subordinate (as contrasted from an officer of an inferior rank in some other department) to the officer whose decision is the subject matter of the dispute" (SCC p. 533, para 34) and this exception was used by the Supreme Court in Denel (Proprietary) Ltd. v. Govt. of India, Ministry of Defence, (2012) 2 SCC 759 : AIR 2012 SC 817 and Bipromasz Bipron Trading SA v. Bharat Electronics Ltd., (20....
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....ce of any relationship or interest of any kind which is likely to give rise to justifiable doubts. The Commission has proposed the incorporation of the Fourth Schedule, which has drawn from the red and orange lists of the IBA Guidelines on Conflicts of Interest in International Arbitration, and which would be treated as a "guide" to determine whether circumstances exist which give rise to such justifiable doubts. On the other hand, in terms of the proposed section 12(5) of the Act and the Fifth Schedule which incorporates the categories from the red list of the IBA Guidelines (as above), the person proposed to be appointed as an arbitrator shall be *ineligible* to be so appointed, notwithstanding any prior agreement to the contrary. In the event such an ineligible person is purported to be appointed as an arbitrator, he shall be de jure deemed to be unable to perform his functions, in terms of the proposed explanation to section 14. Therefore, while the *disclosure* is required with respect to a broader list of categories (as set out in the Fourth Schedule, and as based on the Red and Orange lists of the IBA Guidelines), the *ineligibility* to be appointed as an arbitrator (and the....
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....015, it is manifest that the main purpose for amending the provision was to provide for neutrality of arbitrators. In order to achieve this, 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 finds foul with the amended provisions extracted above, the appointment of an arbitrator would be beyond pale of the arbitration agreement, empowering the court to appoint such arbitrator(s) as may be permissible. That would be the effect of non obstante clause contained in sub-section (5) of Section 12 and the other party cannot insist on appointment of the arbitrator in terms of arbitration agreement." 15. In the case of Bharat Broadband Network Limited (Supra), it is observed that Sub-section (5) of Section 12 read with Seventh Schedule made it clear that if the arbitrator falls in any one of the categories specified in the Seventh Schedule, he becomes 'ineligible....
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....ty can be removed is by the proviso, which again is a special provision which states that parties may, subsequent to disputes having arisen between them, waive the applicability of Section 12(5) by an express agreement in writing. What is clear, therefore, is that where, under any agreement between the parties, a person falls within any of the categories set out in the Seventh Schedule, he is, as a matter of law, ineligible to be appointed as an arbitrator. The only way in which this ineligibility can be removed, again, in law, is that parties may after disputes have arisen between them, waive the applicability of this sub-section by an "express agreement in writing". Obviously, the "express agreement in writing" has reference to a person who is interdicted by the Seventh Schedule, but who is stated by parties (after the disputes have arisen between them) to be a person in whom they have faith notwithstanding the fact that such person is interdicted by the Seventh Schedule. xxx xxx xxx 20. This then brings us to the applicability of the proviso to Section 12(5) on the facts of this case. Unlike Section 4 of the Act which deals with deemed waiver of the right to ob....
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....pable of acting as an arbitrator. Equally, the fact that a statement of claim may have been filed before the arbitrator, would not mean that there is an express agreement in words which would make it clear that both parties wish Shri Khan to continue as arbitrator despite being ineligible to act as such. This being the case, the impugned judgment is not correct when it applies Section 4, Section 7, Section 12(4), Section 13(2), and Section 16(2) of the Act to the facts of the present case, and goes on to state that the appellant cannot be allowed to raise the issue of eligibility of an arbitrator, having itself appointed the arbitrator. The judgment under appeal is also in correct in stating that there is an express waiver in writing from the fact that an appointment letter has been issued by the appellant, and a statement of claim has been filed by the respondent before the arbitrator. The moment the appellant came to know that Shri Khan's appointment itself would be invalid, it filed an application before the sole arbitrator for termination of his mandate." 9. In view of the above and for the reasons stated hereinabove, the impugned judgment and order passed by the High Co....