Bombay High Court
S E Investments Limited (Now Known As … vs Sezal Glass Limited (Formerly Known As … on 4 August, 2026
CNR No : HCBM020116742026
HMK COMEXA-59-2016.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
Digitally signed
PRACHI
by PRACHI
PRANESH
ORDINARY ORIGINAL CIVIL JURISDICTION
PRANESH NANDIWADEKAR
NANDIWADEKAR
Date: 2026.08.04
14:18:45 +0530 IN ITS COMMERCIAL JURISDICTION
INTERIM APPLICATION NO.2007 OF 2026
IN
COMMERCIAL EXECUTION APPLICATION NO.59 OF 2016
M/s. S. E. Investments Ltd.
(now known as Paisalo Digital Limited) ...Applicant
Versus
Star Bazaar Private Limited,
(Through its Director/Manager/Secretary) & Ors. ...Respondents
WITH
INTERIM APPLICATION NO.2011 OF 2026
IN
EXECUTION APPLICATION NO.2073 OF 2016
M/s. S. E. Investments Ltd.
(now known as Paisalo Digital Limited) ...Applicant
Versus
Hareram Cotton Industries (Through
Its Proprietor Ramdas Mahadev Hirode) & Ors. ...Respondents
WITH
INTERIM APPLICATION NO.2009 OF 2026
IN
EXECUTION APPLICATION NO.2028 OF 2015
M/s. S. E. Investments Ltd.
(now known as Paisalo Digital Limited) ...Applicant
Versus
M/s. Maple Composite Containers Limited
(Through its Directors) & Ors. ...Respondents
WITH
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INTERIM APPLICATION NO.2015 OF 2026
IN
EXECUTION APPLICATION NO.1783 OF 2015
M/s. S. E. Investments Ltd
(now known as Paisalo Digital Limited) ...Applicant
Versus
M/s. Sezal Glass Limited (formerly
known as Sejal Architectural Glass
Limited) (Through Its Directors) & Ors. ...Respondents
__________________________________________________________________
Mr. Devesh Khara a/w. Mr. Abhinav Kalia, Mr. Devesh Dubey, Ms. Shoumya
Sahu, Mr. Akhilesh Nair, Mr. Bismit Nayak, Mr. Lakshya Bhatia, & Mr.
Devendra Kumar Singh i/by DKL Advocates for the Applicant in all
applications.
Mr. Mehul Rathod for Respondent Nos. 2 & 3 in IA/2009/2026.
Mr. Ashish Kamat, Senior Advoate a/w. Ms. Shivanee Srivastava, Mr. Varun
V. Dhonde, Ms. Henna Daulay & Mr. Gunjan Shah i/by M/s. G.S. Legal for
the Respondent-Judgment Debtor in IA/2015/2026.
Mr. Jay Sanklecha, Amicus Curiae.
__________________________________________________________________
CORAM : JITENDRA JAIN, J.
DATED : 4 AUGUST 2026
JUDGMENT :
ISSUES :
1. On 1 July 2026, the Execution Court had framed following questions
for its consideration :-
(i) Whether unilateral appointment of arbitrator prior to 23
October 2015 is without jurisdiction, and consequently all
proceedings arising therefrom would be void ab-initio ?
(ii) If answer to question (i) is in affirmative, then whether
Executing Court can consider the effect of such unilateral
appointment of arbitrator, when there is no challenge to the
award passed by the arbitrator ?
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BACKGROUND OF HOW ISSUE AROSE :
2. Resolution of civil disputes between the parties has traditionally been
undertaken by the Civil Courts. However, with the passage of time and
changing scenario, an alternative dispute resolution mechanism was put in
place by way of arbitration, whereby the disputes between the parties were
to be resolved by an arbitrator to be appointed in accordance with the
arbitration agreement between the parties.
3. The process of arbitration was codified by enactment of the
Arbitration Act, 1940 and thereafter by the Arbitration and Conciliation
Act, 1996 (“the Act, 1996”). Based on the experience and the issues that
arose before the Court and the stakeholders in the implementation of the
said Acts, amendments were carried out from time to time and will
continue to be carried out in future to meet the changing times and
situations.
4. Prior to 23 October 2015, judicial recognition was given to the
unilateral appointment of an arbitrator as per the agreement, whereby one
of the party was to appoint an arbitrator or the process of appointment of
an arbitrator by one of the party was agreed upon or named arbitrator by
person or designation was provided in the arbitration agreement. In
Government/PSU contracts, an officer or head of a particular department
was named as an arbitrator or a higher authority of one of the parties to
the arbitration agreement was empowered to appoint another person.
These appointments were challenged on the ground of bias, impartiality,
etc. but said challenges were negatived by the Hon’ble Supreme Court.
On realising that this would be against the basic tenets of arbitration,
which regards equality, unbiased and impartiality as essential ingredients,
the legislature on recommendation of Law Commission inserted Section
12(5) by Act 3 of 2016 with retrospective effect from 23 October 2015. A
similar amendment was made by substituting Section 12 (1) with effect
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from same day. Section 12 as it stood post 23 October 2015 reads as
under :-
12. Grounds for challenge.–
“[(1) When a person is approached in connection with his possible
appointment as an arbitrator, he shall disclose in writing any
circumstances,–
(a) such as the existence either direct or indirect, of any past or present
relationship with or interest in any of the parties or in relation to the
subject-matter in dispute, whether financial, business, professional or
other kind, which is likely to give rise to justifiable doubts as to his
independence or impartiality; and
(b) which are likely to affect his ability to devote sufficient time to the
arbitration and in particular his ability to complete the entire arbitration
within a period of twelve months.
Explanation 1.–The grounds stated in the Fifth Schedule shall guide in
determining whether circumstances exist which give rise to justifiable
doubts as to the independence or impartiality of an arbitrator.
Explanation 2.–The disclosure shall be made by such person in the form
specified in the Sixth Schedule.
(2) An arbitrator, from the time of his appointment and throughout the
arbitral proceedings, shall, without delay, disclose to the parties in writing
any circumstances referred to in sub-section (1) unless they have already
been informed of them by him.
(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.
(5) 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
shall be ineligible to be appointed as an arbitrator:
Provided that parties may, subsequent to disputes having arisen between
them, waive the applicability of this sub-section by an express agreement
in writing.”
5. The Seventh Schedule as it stands post 2015 amendment reads as
under :-
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THE SEVENTH SCHEDULE
[See section 12(5)]
ARBITRATOR’S RELATIONSHIP WITH THE PARTIES OR COUNSEL.
1. The arbitrator is an employee, consultant, advisor or has any other past or
present business relationship with a party.
2. The arbitrator currently represents or advises one of the parties or an
affiliate of one of the parties.
3. The arbitrator currently represents the lawyer or law firm acting as counsel
for one of the parties.
4. The arbitrator is a lawyer in the same law firm which is representing one of
the parties.
5. The arbitrator is a manager, director or part of the management, or has a
similar controlling influence, in an affiliate of one of the parties if the affiliate
is directly involved in the matters in dispute in the arbitration.
6. The arbitrator’s law firm had a previous but terminated involvement in the
case without the arbitrator being involved himself or herself.
7. The arbitrator’s law firm currently has a significant commercial relationship
with one of the parties or an affiliate of one of the parties.
8. The arbitrator regularly advises the appointing party or an affiliate of the
appointing party even though neither the arbitrator nor his or her firm derives
a significant financial income therefrom.
9. The arbitrator has a close family relationship with one of the parties and in
the case of companies with the persons in the management and controlling the
company.
10. A close family member of the arbitrator has a significant financial interest
in one of the parties or an affiliate of one of the parties.
11. The arbitrator is a legal representative of an entity that is a party in the
arbitration.
12. The arbitrator is a manager, director or part of the management, or has a
similar controlling influence in one of the parties.
13. The arbitrator has a significant financial interest in one of the parties or
the outcome of the case.
14. The arbitrator regularly advises the appointing party or an affiliate of the
appointing party, and the arbitrator or his or her firm derives a significant
financial income therefrom.
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RELATIONSHIP OF THE ARBITRATOR TO THE DISPUTE
15. The arbitrator has given legal advice or provided an expert opinion on the
dispute to a party or an affiliate of one of the parties.
16. The arbitrator has previous involvement in the case.
ARBITRATOR’S DIRECT OR INDIRECT INTEREST IN THE DISPUTE
17. The arbitrator holds shares, either directly or indirectly, in one of the
parties or an affiliate of one of the parties that is privately held.
18. A close family member of the arbitrator has a significant financial interest
in the outcome of the dispute.
19. The arbitrator or a close family member of the arbitrator has a close
relationship with a third party who may be liable to recourse on the part of
the unsuccessful party in the dispute.
Explanation 1.–The term “close family member” refers to a spouse, sibling,
child, parent or life partner.
Explanation 2.–The term “affiliate” encompasses all companies in one group
of companies including the parent company.
Explanation 3.–For the removal of doubts, it is clarified that it may be the
practice in certain specific kinds of arbitration, such as maritime or
commodities arbitration, to draw arbitrators from a small, specialised pool. If
in such fields it is the custom and practice for parties frequently to appoint
the same arbitrator in different cases, this is a relevant fact to be taken into
account while applying the rules set out above.]
6. Fifth Schedule, referred to in Section 12 (1) inserted with effect from
23 October 2015 lists down various grounds which gives rise to justifiable
doubts as to the independence or impartiality of arbitrators. Seventh
Schedule referred to in Section 12(5) inserted with effect from 23 October
2025 provides for disqualification of a person from being an arbitrator.
Prior to 23 October 2015, Section 12(5), Seventh Schedule and Fifth
Schedule were not on the statute book.
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7. Section 12 as it stood prior to 2015 amendment reads as under :-
12. Grounds for challenge.-
(1) When a person is approached in connection with his possible
appointment as an arbitrator, he shall disclose in writing any
circumstances likely to give rise to justifiable doubts as to his
independence or impartiality.
(2) An arbitrator, from the time of his appointment and throughout the
arbitral proceedings, shall, without delay, disclose to the parties in
writing any circumstances referred to in sub-section (1) unless they
have already been informed of them by him.
(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.
8. On 5 January 2026, the Hon’ble Supreme Court in the case of Bhadra
International (India) Pvt. Ltd. vs. Airport Authority of India 1 was posed
with the question whether invocation of arbitration after 23 October 2015
in violation of Section 12(5) would vitiate all the proceedings arising
therefrom. The Hon’ble Supreme Court held that invocation of arbitration
post 23 October 2015 contrary to the provisions of Section 12(5) would be
void and bad in law and an award passed pursuant to such void
appointment cannot be executed. While coming to the said conclusion, the
Hon’ble Supreme Court referred to its decision in the case of Dharma
Prathishthanam vs. Madhok Construction (P) Ltd.2, wherein it was held
that unilateral appointment without the consent of the other party is
illegal. Prior to referring to the said decision, the Hon’ble Supreme Court
1 2026 SCC OnLine SC 7
2 (2005) 9 SCC 686
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also discussed provisions of Section 18 of the Act and in paragraph 37 of
Bhadra International (India) Pvt. Ltd. (supra) observed that what was
implicit prior to 23 October 2015 has now been made explicit and that a
statutory guarantee is given of equal treatment in the process of
appointment of the arbitrator.
9. Based on the above observations, judgment debtor against whom
awards are passed by invoking arbitration prior to 23 October 2015 would
contend in execution proceedings that the decision in the case of Bhadra
International (India) Pvt. Ltd. (supra) would apply even to invocation of
arbitration prior to 23 October 2015 and, therefore, unilateral appointment
is illegal and consequently awards passed pursuant to such illegal
appointment cannot be executed. The decree holder would contend
otherwise by submitting that the decision in the case of Bhadra
International (India) Pvt. Ltd. (supra) would be applicable only to those
arbitrations which have been invoked after 23 October 2015 and therefore,
would not be applicable to the awards passed pursuant to invocation of
arbitration prior to 23 October 2015. The date of invocation of arbitration
which confers jurisdiction on the tribunal is crucial point in the present
case for adjudicating whether the decision in Bhadra International (India)
Pvt. Ltd. (supra) would be applicable to the facts of a particular case or not.
10. It is on the above backdrop that, this Court was faced with a
situation where execution applications have been filed to enforce arbitral
awards in respect of which arbitration was invoked prior to 23 October
2015. The applicants in the execution applications were seeking
enforcement on the ground that provisions of Section 12(5) of the Act,
1996 would not be applicable to the arbitral proceedings initiated prior to
23 October 2015, being the date of enactment of amendment of Section
12(5). The respondents were arguing relying on certain paragraphs of the
decision of the Hon’ble Supreme Court in the case of Bhadra International
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(India) Pvt. Ltd. (supra) and submitting that the ratio/obiter laid down by
the said decision would equally apply to invocation of arbitration prior to
23 October 2015 and since unilateral arbitration is held to be void,
execution applications should be dismissed.
11. Looking at the importance of the questions raised, this Court
appointed Mr. Jay Sanklecha, advocate of this Court as amicus curiae for
assisting the Court in resolving the controversy. This Court appreciates the
assistance rendered by Mr. Sanklecha with his lucid and detailed
arguments, followed by detailed written submissions and research
analysing the whole law on the above controversy. The Court appreciates
the efforts put in by the amicus curiae, which would also act as a guide to
young lawyers and counsel on how to prepare for a matter. The amicus
brought clarity to this whole subject, which assisted the Court in deciding
the issue.
Submissions of learned senior counsel Mr. Kamat on Bhadra International
(India) Pvt. Ltd.
12. Mr. Kamat, learned senior counsel appearing for judgment debtor in
one of the connected matters has made following submissions :-
(i) Mr. Kamat referring to Sections 7, 11(2), 11(6), 12(1), 12(2),
12(3) and 18 of the Arbitration and Conciliation Act, 1996
(“the Act”) submitted that these sections existed prior to
insertion of Section 12(5) and continued to exist even post
insertion of Section 12(5). He submitted that these provisions
indicates the foundation of mutuality in referring disputes,
party autonomy, guidance with respect to independence, lack
of bias, impartiality, consensus etc. which forms the bedrock
or the foundation of the alternate dispute resolution
mechanism enshrined under the Act, 1996. The reason why9 of 71
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it is his reading that the Hon’ble Supreme Court in the case of
Bhadra International (India) Pvt. Ltd. (supra) has come to a
conclusion that if the appointment of an arbitrator is hit by
implicit disqualification relating to the appointment of an
arbitrator prior to 2015 amendment, then the proceedings
are void.
(ii) Referring to Section 12(5), Seventh Schedule and Fifth
Schedule of the Act inserted with effect from 23 October
2015, he submitted that what were implicit ingredients of
Sections 7, 11, 12, 18 referred to above, were explicitly
expressed in the Schedules and nothing new has been
inserted by the 2015 amendment.
(iii) Mr. Kamat, thereafter, referred to paragraphs 53 to 60 of the
Law Commission Report No.246 dated 5 August 2014 and
emphasised that the neutrality of an arbitrator is universally
accepted and is critical to the entire process of dispute
resolution and it also forms the basis for challenging the
appointment of an arbitrator under Section 12(3). He
submitted that the Law Commission Report expressed that
there may not be actual bias, but the bar is too high as to
whether the circumstances in question give rise to any
apprehension of bias. He submitted that the Law Commission
has observed that the decisions of the Hon’ble Supreme Court
have not been in consonance with the neutrality principle.
He further referred to paragraph 57 wherein the Law
Commission observes that the balance between procedural
fairness and binding nature of contracts appears to have been
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tilted in favour of the contracts by the Hon’ble Supreme
Court and same is not far from satisfactory. The Law
Commission further observes that principles of impartiality
and independence cannot be discarded at any stage including
the stage of constitution of the tribunal and same would be
incongruous even if the same has been agreed prior to the
dispute having arisen between the parties. The concept of
party autonomy cannot be stretched to a point where it
negates the very basis of impartial and independent
adjudicators for resolution of disputes. He referred to the fact
that Fifth Schedule of the 1996 Act is borrowed from Red and
Orange List of the IBA guidelines on conflicts of interest in
international arbitration. The Law Commission further
observes that the disqualification can be waived by an express
agreement in writing.
(iv) Reliance has been placed by the learned senior counsel on the
Law Commission Report to contend that neutrality and
impartiality have always been the foundation of the
Arbitration Act, not only in the Arbitration Act, 1940 but even
under the Act of 1996.
(v) The learned senior counsel, thereafter, relied upon the
decision of the Hon’ble Supreme Court in the case of Dharma
Prathishthanam (supra) and contended that though the facts
of Dharma Prathishthanam (supra) are different, where one
of the parties without the consent of the other appointed an
arbitrator and this was held to be void, the observations
made therein by the Hon’ble Supreme Court with regard to
independence of an arbitrator are very crucial. In paragraph
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7, the Hon’ble Supreme Court observes that the appointment
and the reference both should be based on consent given by
the parties to the contract. In paragraph 12, the Hon’ble
Supreme Court observes that if the arbitration clause names
an arbitrator as the one already agreed upon, then the
appointment does not pose any difficulty or if the arbitration
clause provides for the manner in which the arbitrator is to
be chosen and appointed, then the parties are bound to act
accordingly. However, if the parties do not agree, then a party
cannot without approaching the Court appoint an arbitrator
unilaterally. The learned senior counsel further emphasised
on paragraph 15 and submitted that even if a party
participates in the proceedings, but if it is found that the
appointment itself is void, then the proceedings are void and
such participation cannot confer jurisdiction and same cannot
be cured even by acquiescence.
(vi) The learned senior counsel thereafter relied upon the
decision of the Hon’ble Supreme Court in the case of Bhadra
International (India) Pvt. Ltd. (supra) . He submitted that in
that case the invocation of arbitration was post insertion of
Section 12(5) of the Act, 1996. However, the Court in
paragraphs 32 to 37 relied upon provisions of Section 18 of
the Act alongwith the decision in the case of Central
Organisation for Railway Electrification (CORE) vs. M/s. ECI
SPIC SMO MCML (JV) A Joint Venture Company 3 and
emphasised the importance of impartiality and fairness in the
arbitral process. The Hon’ble Supreme Court in these
paragraphs further emphasised the importance of equal
3 (2025) 4 SCC 641
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participation of the parties in the process of appointment of
an arbitrator and an equal say in its constitution. The Hon’ble
Supreme Court after relying upon the decision in the case of
Dharma Prathishthanam (supra) and interpreting Section 18
of the Act, which existed even prior to 2015 amendment
observes that the principle of equal treatment of parties
which has always formed part of the Act has been articulated
with greater clarity and precision by the legislature through
the Amendment Act, 2015. The Amendment Act crystalises
what was previously implicit.
(vii) Thereafter, the learned senior counsel emphasised the
interpretation given by the Hon’ble Supreme Court to Section
12(5) of the Act. While interpreting Section 12(5), the
Hon’ble Supreme Court relied upon Sections 12(1), 12(2)
and 12(3) of the Act which existed even prior to 2015
amendment. Section 12(5) completely debars a person from
acting as an arbitrator, if any of the disqualifications are
attached. However, if parties agree to waive the same, then
the disqualification gets obliterated.
(viii) The learned senior counsel heavily relied on paragraph 58 of
Bhadra International (India) Pvt. Ltd. (supra) and submitted
that unilateral appointments are not consistent with the basic
tenets of arbitration. He further submitted that an arbitrator
is legally incapable of performing his function and is barred
by law from continuing in office on account of ineligibility
under Section 12(5).
(ix) Mr. Kamat, learned senior counsel referring to the decision of
this Court in the case of Chhabriya Cloth Stores vs. Kamal
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Synthetics4 and the decision of the Hon’ble Supreme Court in
the case of K. K. Modi vs. K. N. Modi and Ors.5 submitted
that ratio of Dharma Prathishthanam (supra) has been
applied even to matters under the Arbitration Act, 1940. He
further submitted that the Supreme Court in paragraph 17 of
the said decision has observed that jurisdiction of the tribunal
is conferred by consent or by the Court or by the Statute and
the agreement must contemplate that substantive rights of
the parties will be determined by the tribunal which is
impartial, judicious and exercises equal fairness towards both
sides. He, therefore, submitted that the implicit ingredients of
fairness, unbiased, equality, etc., were the bedrock of even
Arbitration Act, 1940 and the Courts have struck down the
awards passed contrary there to.
(x) Learned Senior Counsel, thereafter, referred to the decision in
the case of Indian Oil Corporation Ltd. & Ors. vs. Raja
Transport Pvt. Ltd.6, and more particularly paragraphs 13 to
15 and 27 to 39 and contended that the view of the Hon’ble
Supreme Court has been that an interested person cannot be
appointed as an arbitrator. He also refers to paragraph 38
where the Court observes that the parties after having agreed
to an arbitration clause providing for employee arbitrator
before entering into the contract, subsequently litigate to
secure an independent arbitrator. He emphasised that the
Hon’ble Supreme Court in the said decision has stressed upon
the independence and impartiality of the arbitrator.
4 2025 SCC OnLine Bom 1950
5 (1998) 3 SCC 573
6 (2009) 8 SCC 520
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(xi) The learned senior counsel refers to the decision of the
Hon’ble Supreme Court in the case of Board of Control for
Cricket in India vs. Kochi Cricket Private Limited and Others 7,
wherein in paragraph 75 the Hon’ble Supreme Court while
dealing with 2015 amendment clarifies that though Section
26 of the Amendment Act makes whole of the Act prospective
in nature but they would be considering the effect of
amendment only qua Section 36 and not with respect to
other sections. He, therefore, submitted that this decision
cannot be relied upon by judgment creditor to contend that
the Supreme Court has laid down that the Amendment Act of
2015 is prospective in nature with regard to provisions other
than section 36 of the Amendment Act as well.
(xii) The learned senior counsel, thereafter, relied upon decisions
of the Delhi High Court in the case of Vineet Dujodwala &
Ors. vs. Phonenix Arc Pvt. Ltd., & Anr.8 ABL Biotechnologies
Ltd. & Ors. vs. Technology Development Board & Anr., 9
Supreme Infrastructure India Limited vs. Freyssinet Memard
India Pvt. Ltd.,10 and Bharat Forge Limited vs. Tarsem Jain
and Anr.,11 and submitted that even prior to Bhadra
International (India) Pvt. Ltd. (supra), the Delhi High Court
has quashed the awards challenged under Section 34 of the
Act on the ground of the arbitrator being unilaterally
appointed being unfair. Relying upon the said decisions he
submitted that even prior to 2015 amendment the law has
7 (2018) 6 SCC 287
8 2024 SCC OnLine Del 5490
9 2024 SCC OnLine Del 10320
10 2025 SCC OnLine Del 3305
11 2025 SCC OnLine Del 4090
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always been that a unilateral appointment without the
consent of one of the party at the time of the appointment
though agreeing to the arbitration at the time of signing
agreement has been found to be illegal and bad in law.
(xiii) Learned senior counsel, thereafter, relied upon decision of
this Court in the case of D. S. Textile vs. IIFL Limited,12 and
Ingram Micro India Pvt. Ltd.vs. Duckback Information
Systems Pvt. Ltd. and Anr.,13 to contend that even Learned
Single Judge in these decisions has expressed his
displeasure/reservations on the increasing trend of NBFC and
other banks to appoint arbitrator unilaterally even post 2015.
The reason why he relied upon these two decisions is to
submit that even the Learned Single Judge was of the prima
facie view that such appointments are bad in law though
these matters were under Section 9 and 11 of the Act, 1996.
(xiv) Learned senior counsel, thereafter, relied upon various
paragraphs of the decision of the Hon’ble Supreme Court in
the case of CORE (supra) which dealt with an appointment
post insertion of Section 12 (5) but while dealing with the
same has emphasised the basic foundational ingredients of
appointment of an arbitrator namely unbiased, impartiality,
equal treatment etc. He relied upon paragraphs 1, 14, 63, 64,
66 to 68, 70 to 75, 81, 88, 103, 112, 113, 124 to 137, 149,
163, 164 and 167 to 169 to emphasis that above attributes
are absent in unilateral appointment and, therefore, such
appointments have been held by Bhadra International (India)
Pvt. Ltd. (supra) to be void even prior to 2015.
12 Arbitration Petition (L) No.12097 of 2026
13 Commercial Arbitration Petition No.202 of 2023
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(xv) Lastly, learned senior counsel submits that even Bhadra
International (India) Pvt. Ltd. (supra) clearly indicates that
the basic ingredients of impartiality, unbiased, equal
treatment which have now been incorporated in the statute,
were always enshrined in the Arbitration Act, 1940 and the
Arbitration and Conciliation Act, 1996 prior to 2015
amendment and therefore, if these fundamental aspects are
not complied with then applying the ratio of Bhadra
International (India) Pvt. Ltd. (supra) the awards wherein
there is unilateral appointment have to be quashed as void.
Submissions of Mr. Jay Sanklecha, Amicus Curiae :
13. Mr. Sanklecha, learned amicus curiae opposed submissions made by
Mr. Kamat, learned senior counsel on following grounds :-
(i) Mr. Sanklecha submitted that unilateral appointment can be made in
three ways viz. naming arbitrator by person/designation in arbitration
agreement, giving authority to a person to appoint an arbitrator and
without there being any such clause a person appointing an arbitrator
without consent of other and it is the last one which is void.
(ii) Mr. Jay Sanklecha, learned amicus curiae submitted that jurisdiction
for arbitration is conferred by consent of the parties. The consent could be
by naming a person or by designation as an arbitrator or by agreeing to the
appointment of an arbitrator by another party to the contract. In all these
cases there is consent given by one party to another and therefore, it
cannot be said that there is no consensus in such cases. This view has been
accepted by the Hon’ble Supreme Court in a series of decisions dealing with
appointment prior to 2015 Amendment.
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(iii) Mr. Sanklecha, refers to the Arbitration Act of 1996 as it existed prior
to 2015 Amendment and after referring to Sections 7, 10, 11, 12 and 13
submits that the parties by agreement agree to refer the dispute between
them for arbitration, the number of arbitrators is also agreed upon by the
parties, the procedure for appointment of the arbitrator is also agreed upon
by the parties. Section 11(6) provides that where the parties to the
agreement fail to act as per the procedure agreed upon then the Court
appoints an arbitrator and in such appointment by the Court independence
and impartiality are given due regard. Section 12 provides for disclosure by
an arbitrator in writing, which may give rise to doubts as to his
independence or impartiality not only at the time of his appointment but
even during the arbitral proceedings and an arbitrator may be challenged if
circumstances exists that gives rise to justifiable doubts as to his
independence or impartiality. The parties agree upon the procedure for
challenge to appointment of an arbitrator not only at the time of his
appointment but also during the course of the arbitration.
(iv) Mr. Sanklecha submits that out of three types of unilateral appointment
it is only the type where there is no named arbitrator or no provision
whereby one party is given authority to appoint an arbitrator, that in those
cases unilateral appointment has been held to be bad in law. If there is
named arbitrator or a party is authorised to appoint an arbitrator, then as
per the decisions of the Hon’ble Supreme Court in the case of Datar
Switchgears Ltd. vs. Tata Finance 14 and Indian Oil Corporation Ltd. & Ors.
(supra) it cannot be said that unilateral appointment is bad in law. He
further submitted that party autonomy has been done away with after 23
October 2015 by virtue of Section 12(5) of the Act.
(v) Mr. Sanklecha submitted that consistent stand of the Hon’ble Supreme
Court post 2015 Amendment is that the provisions of the Amendment Act
14 (2000) 8 SCC 151
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are prospective and, therefore, it would not be correct to say that decision
in the case of Kochi Cricket Private Limited (supra) was restricted insofar as
prospectivity is concerned only qua Section 36. Mr Sanklecha refers to the
decisions in cases of Bhadra International (India) Pvt. Ltd. (supra) , Aravali
Power Company Limited vs. Era Infra Engineering Ltd. 15, Rajasthan Small
Industries Corporation Limited vs. Ganesh Containers Movers Syndicate 16,
S. P. Singla Construction Private Limited vs. State of Himachal Pradesh &
Anr.17 and Union of India vs. Parmar Constructions Company18 (supra) and
decisions of this Court and other High Courts which have consistently taken
the view that 2015 Amendments and more particularly Section 12(5) are
prospective.
(vi) Mr. Sanklecha, referring to the decision of this Court, prior to Bhadra
International (India) Pvt. Ltd. (supra) in the case of Integro Finserve Pvt.
Ltd. vs. Vineet Singh Construction Pvt. Ltd. 19 submitted that even this
Court after considering Kochi Cricket Private Limited (supra) and various
other decisions referred to above has come to a conclusion that the
Amendment Act of 2015 is prospective and, therefore, provisions of Section
12(5) cannot be invoked for substituting an arbitrator appointed prior to
2015. Mr. Sanklecha further submitted that Division Bench of this Court in
the case of State of Maharashtra vs. Morya Infrastructure Pvt. Ltd. 20 after
considering Bhadra International (India) Pvt. Ltd. (supra) and Kochi
Cricket Private Limited (supra) held that the provisions of Section 12(5)
are prospective and would not be applicable to appointments made prior to
2015.
(vii) Mr. Sanklecha, referring to the decision in the case of Dharma
Prathishthanam (supra) read out various paragraphs and submitted that in
15 (2017) 15 SCC 32
16 (2019) 3 SCC 282
17 (2019) 2 SCC 488
18 (2019) 15 SCC 682
19 (2024) SCC OnLine Bom 511
20 (2026) SCC OnLine Bom 1374
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paragraphs 7 and 31, the Hon’ble Supreme Court specifically notes that in
the case of Dharma Prathishthanam (supra) there was no named arbitrator
nor anyone of the party was given authority to appoint an arbitrator. He
submitted that Hon’ble Supreme Court recognises that in these two cases
unilateral appointment would not be bad in law and it is only in a case
where the arbitration clause provides for appointment by mutual consent
and one of the party proceeds to appoint an arbitrator without the consent
of the other that such an appointment is held to be illegal. He submitted
that the decision of the Delhi High Court in the case of Bharat Forge Ltd.
(supra) is similar to the case of Dharma Prathishthanam (supra) since the
arbitration clause in the case of Bharat Forge Ltd. (supra) was not
reproduced in judgment but on a reading of various paragraphs one can
infer that it was a case similar to Dharma Prathishthanam (supra).
(viii) Mr. Sanklecha referred to decision in the case of Indian Oil
Corporation Ltd. & Ors. (supra) and its various paragraphs and submitted
that if the arbitration clause names a person by designation or name or an
authority is given to one of the party to appoint an arbitrator, then such
appointments prior to 2015 have been held to be valid. He submitted that
this decision of Indian Oil Corporation Ltd. & Ors. (supra) and other
decisions rendered with regard to such type of appointment of an arbitrator
have been judicially recognised by the Hon’ble Supreme Court in the case
of CORE (supra).
(ix) Mr. Sanklecha further relied upon the decision in the case of Avneet
Soni vs. Kavita Agarwal21 and Punjab State Civil Supplies Corporation vs.
Ganesh Rice Mills22 and submitted that these decisions supports the
submissions made that appointments made prior to 2015 in accordance
with an arbitration agreement which contains a named arbitrator or
21 (2026) SCC OnLine Del 3235
22 (2026) SCC OnLine P&H 13164
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authorises one of the party to appoint an arbitrator cannot be held to be
bad in law. Both these decisions have considered the amendment and held
it to be prospective.
(x) Mr. Sanklecha sought to distinguish the decision in the case of
ABL Biotechnologies Ltd. & Ors. (supra) and submitted that was the case of
unilateral appointment similar to the facts of Dharma Prathishthanam
(supra) and was with regard to an appointment post 2015 which can be
culled out from the decision in the case of SK Builders which is referred to
in paragraph 3 of the said decision.
(xi) Mr. Sanklecha sought to distinguish the decision of the Delhi High
Court in the case of Vineet Dujodwala & Ors. (supra) and submitted that on
a perusal of the said decision it is not clear as to what was the arbitration
agreement but on a perusal of the decision it appears that it too was a case
very similar to the case of Dharma Prathishthanam (supra) and further
whether Section 12(5) is retrospective or prospective was not the issue
before the Delhi High Court.
(xii) Mr. Sanklecha, thereafter, relied upon the decision of the Calcutta
High Court in the case of West Bengal Housing Board vs. Abhishek
Construction23 and submitted that this very issue had come up for
consideration before the Calcutta High Court and the High Court after
considering the amendment and referring to the decision in the case of
Kochi Cricket Private Limited (supra), observed that the amendments made
in 2015 are substantive amendments which cannot be made applicable
retrospectively.
(xiii) Mr. Sanklecha, thereafter, referred to the decision in the case of
Bhadra International (India) Pvt. Ltd. (supra) and submitted that the
23 2023 SCC OnLine Cal 827
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reference to Dharma Prathishthanam (supra) was made only in a
background for deciding the issue and the issue which was raised for
consideration before the Hon’ble Supreme Court was whether an arbitrator
appointed contrary to provisions of Section 12(5) can be said to have
become ineligible and whether the parties had waived the applicability of
Section 12(5) and whether such an argument can be raised for the
first time in an application under Section 34 of the Act. Mr. Sanklecha
submitted that Bhadra International (India) Pvt. Ltd. (supra) was a case of
de jure ineligibility which goes to the root of the matter and was dealing
with a case post 2015 amendment and, therefore, one cannot pick up
certain observations of the decision dehors the core issue and contend by
relying upon the said decision that unilateral appointments in all cases
prior to 2015 are illegal and bad in law.
(xiv) He submitted that prior to 2015, there were enough safeguards under
the Act, which provided for challenge to the appointment of an arbitrator
in accordance with law even if the parties have agreed to a named
arbitrator or parties have agreed to give authority to one party to appoint
the arbitrator. He, therefore, submitted that prior to 2015 it was not a case
of de jure ineligibility of the arbitrator to perform his function in all cases.
He submitted that the provision of Section 14(1)(a) was substituted with
effect from 23 October 2015, whereby the arbitrator becomes de jure or de
facto unable to perform his function.
(xv) Mr. Sanklecha submitted relying on paragraph 113 of Bhadra
International (India) Pvt. Ltd. (supra) that insofar as challenge to the
ineligibility of the arbitrator is concerned, it can be raised at any stage and
even in execution proceedings, if the arbitrator who passed the award
lacked jurisdiction. He submitted that pre 2015 unilateral appointment in
all the cases did not lead to an award being passed without jurisdiction and
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it was only in third category where there is no named arbitrator or an
authority is not given to one of the party to appoint an arbitrator, that
unilateral appointment were held to be illegal. He further submitted that
prior to 2015 even if the parties have agreed to a named arbitrator or has
given authority to one of the party to appoint an arbitrator, but at the time
of the appointment had any reservation, it could always be challenged
before the arbitrator and also in a petition under Section 34 of the 1996
Act.
(xvi) Mr. Sanklecha, thereafter, sought to distinguish the decisions relied
upon by the learned senior counsel. He submitted that insofar as the
decision in the case of Chhabriya Cloth Stores (supra) is concerned, the
arbitration clause is not culled out in the judgment but on a reading of the
judgment as a whole, emphasis is made by the learned Judge that there
was no named arbitrator. He, therefore, submitted that this is a case very
similar to the case of Dharma Prathishthanam (supra). He further sought to
distinguish the decision in the case of K. K. Modi (supra) where the issue
was whether the agreement between the family members could at all be
considered as an arbitration agreement or a reference of an issue to an
expert for decision. He submitted that reliance placed on paragraph 17 of
that judgment cannot be of any assistance in answering the question raised
today. Similarly, he submitted that decision in the case of Bharat Forge Ltd.
(supra) was similar to that of Dharma Prathishthanam (supra) and further
the appointment was objected to at the first available instance and it is on
these facts that the appointment of arbitrator was held to be bad in law.
(xvii) Lastly, Mr. Sanklecha referring to the decision of this Court in the
case of Ajazul Haque Khan vs. ICICI Bank Limited 24 submitted that it was a
decision post 2015 and same would not be applicable to the facts of the
present case.
24 CARBP(L) No.16052 of 2026 decided on 7 May 2026
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(xviii)Mr. Sanklecha concluded by submitting that the unilateral
appointments made prior to 23 October 2015 except in cases similar to
Dharma Prathishthanam (supra) cannot be without jurisdiction and that
the proceedings arising therefrom cannot be held to be void ab initio. He,
therefore, submitted that in the light of this submission answer to question
(ii) would not arise.
14. Submissions of Mr. Devesh Khara, learned counsel for the Judgment
Creditor :-
(i) Learned counsel for the judgment creditor relied upon the decision in
the case of Voestalpine Schienen GmbH vs. Delhi Metro Rail Corporation
Limited25 and more particularly paragraph 14, wherein four pillars of the
commercial arbitration are described namely :-
(a) The first pillar – general principles being speedy, inexpensive and fair
trial by an impartial tribunal, party autonomy and minimum court
intervention.
(b) The second pillar – general duty of the tribunal which is enshrined in
Section 18 of the Arbitration and Conciliation Act, 1996 and which is
applicable during the conduct of the arbitral proceedings and not at the
time of the appointment.
(c) The third pillar – general duty of the parties which means
participating in the arbitration proceedings and
(d) The fourth pillar – mandatory and semi-mandatory provisions.
It is his submission that if a party does not carry out the duty
enshrined in the third pillar, then it cannot be absolved of its liability under
an award.
25 (2017) 4 SCC 665
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(ii) Mr. Khara, learned counsel submits that if a party does not challenge
the appointment of the arbitrator at any stage nor the award passed by
such an arbitrator though the Act provides remedy for such a challenge
under Sections 13, 34, 37 etc., then it would amount to waiver under
Section 4 of the Act and the judgment debtor should not be permitted to
challenge the appointment at the stage of execution.
(iii) Mr. Khara, learned counsel submits that these are commercial
contracts and unless it falls foul of commercial bargain, same should be
interpreted in terms of the agreement between the parties who have signed
the document with wide eyes open.
(iv) Mr. Khara, learned counsel relied upon the decision in the case of
Central Inland Water Transport Corporation Limited & Anr. vs. Brojo Nath
Ganguly26 and more particularly paragraph 89 of that judgment and
submitted this is not a case of disproportionate and unequal bargaining
power because the agreement is commercial in nature and the transaction
is of money lending. He submitted that the plea is now being made by the
judgment debtor after almost more than a decade of passing of the award.
He submits that the borrower in a money lending transaction, after the
money is received is in a stronger position than a lender who has to wait
for decades to recover the amount. He submits that an arbitration which is
adopted for speedy disposal of the dispute is being misused by the
judgment debtor for avoiding payment.
(v) Mr. Khara, learned counsel relied upon the decision in the case of
Narayan Prasad Lohia vs. Nikunj Kumar Lohia & Ors. 27 in support of his
submission that the Act provides sufficient remedy for challenge to the
26 (1986) 3 SCC 156
27 (2002) 3 SCC 572.
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appointment of an arbitrator and its jurisdiction and if such an objection is
not raised, then it must be deemed to have been waived.
(vi) Mr. Khara, learned counsel referred to the decision in the case of
Bhadra International (India) Pvt. Ltd. (supra) and more particularly the
arbitration clause and submitted that if Bhadra International (India) Pvt.
Ltd. (supra) would have been a case pre-2015, then relying upon various
decisions of the Hon’ble Supreme Court, the appointment as per the
agreement would have been upheld. He submitted that presumption of
independence fails if one reads the arbitration clause in the case of Bhadra
International (India) Pvt. Ltd. (supra) but still the appointment would have
been upheld relying upon the decision in the case of Datar Switchgears Ltd.
(supra).
(vii) Mr. Khara, learned counsel relied upon the decision of the Delhi High
Court in the case of Kamal Kumar vs. Municipal Corporation of Delhi 28 and
submitted that if a challenge under section 12(5) cannot be raised in
Section 37 appeal, then certainly such an objection cannot be raised before
the Executing Court. He submits that the Special Leave Petition against the
said decision has been dismissed by the Supreme Court.
(viii) He, concluded by praying that the objections raised by the judgment
debtor should be rejected by holding that the decision of Bhadra
International (India) Pvt. Ltd. (supra) would not be applicable to
appointments made prior to 2015.
ANALYSIS & CONCLUSIONS :-
15. The submissions made by Mr. Kamat, learned senior counsel for the
judgment debtor that the decision in the case of Bhadra International
28 2023 SCC OnLine Del 6515
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(India) Pvt. Ltd. (supra) would be applicable in all cases of unilateral
appointments even with regard to arbitration proceedings initiated by
issuing a notice prior to 23 October 2015 cannot be accepted for more than
one reason.
16. The issue which requires consideration is whether unilateral
appointment of an arbitrator prior to 23 October 2015 vitiates all
proceedings arising therefrom.
17. It is important to understand various facets of unilateral
appointment. Unless this aspect is clarified, there is bound to be confusion
regarding the applicability of various decisions.
18. Unilateral appointment can be of three types :-
a) Appointment by a party that is evidently not accepted
to be impartial/independent, for example an office-
bearer of one of the parties to the arbitration
agreement is appointed as an arbitrator.
b) The second case would be where one of the parties to
the arbitration agreement as per the said agreement is
entitled to appoint an arbitrator and such an arbitrator
is not connected with the party to the arbitration.
c) The third case would be a case where there is no
contractual clause in the agreement naming a
particular arbitrator or conferring on one of the
parties, the right to unilateral appointment of an
arbitrator, but the appointment is made by one of the
party in the absence of consent of the other party.
19. Section 7 defines arbitration agreement to mean an agreement by the
parties to submit disputes to arbitration. Section 11 provides for
appointment of arbitrators according to procedure agreed by the parties
and failing which by the Court. Section 12 provides for grounds for
challenging appointment of an arbitrator and procedure to be agreed upon
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by the parties. Section 18 provides for equality and each party to be given
full opportunity.
20. Prior to 23 October 2015, inspite of above Sections 7, 11(2), 11(6),
12(1), 12(2), 12(3) and 18 of the Act, 1996 being in force, the Hon’ble
Supreme Court time and again upheld unilateral appointment of an
arbitrator as per the arbitration agreement between the parties, wherein
under the said agreement, one of the party was entitled to appoint an
arbitrator either by person-designate or named person or where the name
of the person was specified who would in turn appoint the arbitrators.
Some of these decisions under the 1996 Act prior to 23 October 2015 are as
under :-
(i) Datar Switchgears Ltd. vs. Tata Finance Ltd & Anr. (supra).
(ii) ACE Pipeline Contracts (P) Ltd. vs. Bharat Petroleum
Corporation Ltd. (supra).
21. The Hon’ble Supreme Court in the case of Indian Oil Corporation
Limited & Ors. (supra) exhaustively dealt with the above issue by referring
to various decisions including above decisions and also by considering
provisions of Sections 11, 12 and 18 of the Act, 1996 and upheld unilateral
appointments made as per agreement but only exception carved out by the
said decision was in the case of a person named as an arbitrator who is an
employee of a company or body or individual other than the State and its
instrumentalities. The relevant discussion on this issue can be found from
paragraphs 13 to 36 of the said decision which reads as under :-
13. Arbitration is a binding voluntary alternative dispute resolution
process by a private forum chosen by the parties. It is quite common for
Governments, statutory corporations and public sector undertakings
while entering into contracts, to provide for settlement of disputes by
arbitration, and further provide that the arbitrator will be one of its
senior officers. If a party, with open eyes and full knowledge and
comprehension of the said provision enters into a contract with a
Government/statutory corporation/public sector undertaking containing
an arbitration agreement providing that one of its Secretaries/Directors
shall be the arbitrator, he cannot subsequently turn around and contend28 of 71
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not by the named arbitrator who is an employee of the other party.
14. No party can say he will be bound by only one part of the agreement
and not the other part, unless such other part is impossible of
performance or is void being contrary to the provisions of the Act, and
such part is severable from the remaining part of the agreement. The
arbitration clause is a package which may provide for what disputes are
arbitrable, at what stage the disputes are arbitrable, who should be the
arbitrator, what should be the venue, what law would govern the parties,
etc. A party to the contract cannot claim the benefit of arbitration under
the arbitration clause, but ignore the appointment procedure relating to
the named arbitrator contained in the arbitration clause.
15. It is now well settled by a series of decisions of this Court that
arbitration agreements in government contracts providing that an
employee of the Department (usually a high official unconnected with
the work or the contract) will be the arbitrator, are neither void nor
unenforceable. We may refer to a few decisions on this aspect.
16. In Executive Engineer v. Gangaram Chhapolia this Court was
considering the validity of the appointment of the arbitrator where the
arbitration required that the disputes shall be referred to the sole
arbitration of a Superintending Engineer of the Public Works Department
unconnected with the work at any stage nominated by the Chief Engineer
concerned.
17. This Court in Gangaram case held: (SCC pp. 631-32, para 9) “
9. The use of the expression ‘Superintending Engineer, State
Public Works Department in Clause 23 qualified by the
restrictive words ‘unconnected with the work’ clearly manifests
an intention of the parties that all questions and disputes
arising out of a works contract shall be referred to the sole
arbitration of a Superintending Engineer of the department
concerned. From the very nature of things, a dispute arising out
of a works contract relating to the Department of Irrigation has
to be referred to a Superintending Engineer, Irrigation as he is
an expert on the subject and it cannot obviously be referred to a
Superintending Engineer, Building & Roads. The only limitation
on the power of the Chief Engineer under Clause 23 was that he
had to appoint a ‘Superintending Engineer unconnected with
the work’ i.e. unconnected with the works contract in relation to
which the dispute has arisen. The learned Subordinate Judge
was obviously wrong in assuming that since D. Sahu,
Superintending Engineer, Irrigation was subordinate to the
Chief Engineer, he was not competent to act as an arbitrator or
since he was a Superintending Engineer, Irrigation, he could not
adjudicate upon the dispute between the parties. The impugned
order passed by the learned Subordinate Judge is accordingly
set aside.”
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18. In Eckersley v. Mersey Docks and Harbour Board it was held:
(QB p. 667)
“The rule which applies to a Judge or other person holding
judicial office-namely, that he ought not to hear cases in which
he might be suspected of a bias in favour of one of the parties
does not apply to an arbitrator, named in a contract, to whom
both the parties have agreed to refer disputes which may arise
between them under it. In order to justify the court in saying
that such an arbitrator is disqualified from acting, circumstances
must be shewn to exist which establish, at least, a probability
that he will in fact be biassed in favour of one of the parties in
giving his decision Where, however, in a contract for the
execution of works, the arbitrator selected by the parties is the
servant of one of them, he is not disqualified by the mere fact
that under the terms of the submission he may have to decide
disputes involving the question whether he has himself acted
with due skill and competence in advising his employers in
respect of the carrying out of the contract.”
19. In Secy. to Govt., Transport Deptt. v. Munuswamy Mudaliar the
contract between the respondent and the State Government contained an
arbitration clause providing that the Superintending Engineer will be the
arbitrator. Disputes arising in respect of cancellation of the contract by
the Department were referred to the said arbitrator. An application under
Section 5 of the Arbitration Act. 1940 was filed by the contractor for
removal of the arbitrator on the ground of apprehended bias on the part
of the arbitrator as he was an employee of the State Government and was
subordinate of the Chief Engineer who took the decision to cancel the
contract.
20. This Court negatived the said contention and held in Munuswamy
case: (SCC pp. 654-55, paras 11 & 13)
“11. … When the parties entered into the contract, the parties
knew the terms of the contract including arbitration clause. The
parties knew the scheme and the fact that the Chief Engineer is
superior and the Superintending Engineer is subordinate to the
Chief Engineer of the particular circle. In spite of that the
parties agreed and entered into arbitration Unless there is
allegation against the named arbitrator either against his
honesty or capacity or mala fides or interest in the subject-
matter or reasonable apprehension of the bias, a named and
agreed arbitrator cannot and should not be removed in exercise
of a discretion vested in the Court under Section 5 of the Act.
13. This Court in International Airports Authority of India v.
K.D. Bali held that there must be reasonable evidence to satisfy
that there was a real likelihood of bias. Vague suspicions of
whimsical, capricious and unreasonable people should not be
made the standard to regulate normal human conduct. In this
country in numerous contracts with the Government, clauses
requiring the Superintending Engineer or some official of the
Government to be the arbitrator are there. It cannot be said that
the Superintending Engineer, as such, cannot be entrusted with
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the work of arbitration and that an apprehension, simpliciter in
the mind of the contractor without any tangible ground, would
be a justification for removal.”
21. In S. Rajan v. State of Keralas this Court held: (SCC pp. 614-15,
b para 12)
12. ……..Clause (3) of the agreement fulfilling the duties set
forth in the arbitration clause of the Standard Preliminary
Specification shall be the Superintending Engineer, Buildings
and Roads Circle, Trivandrum’. Thus, this is a case where the
agreement itself specifies and names the arbitrator. In such a
situation, c it was obligatory upon the learned Subordinate
Judge, in case he was satisfied that the dispute ought to be
referred to the arbitrator, to refer the dispute to the arbitrator
specified in the agreement. It was not open 10 him to ignore the
said clause of the agreement and to appoint another person as
an arbitrator. (emphasis supplied) Only if the arbitrator specified
and named in the agreement refuses or fails to act does the
court get the jurisdiction to appoint another person or persons
as the arbitrator. This is the clear purport of sub-section (4). It
says that the reference shall (emphasis in original) be to the
arbitrator appointed by the parties. Such agreed appointment
may be contained in the agreement itself or may be expressed
separately. To repeat, only in cases where the agreement does
not specify the arbitrator and the parties cannot also agree upon
an arbitrator, does the court get the jurisdiction to appoint an
arbitrator”
22. In Indian Drugs & Pharmaceuticals Ltd. v. Indo Swiss Synthetics Gem
Mfg. Co. Ltd. this Court held: (SCC p. 60, para 17)
“17. Shri Desai submits that Respondent 3 may not be required
to arbitrate inasmüch as he being an appointee of the Chairman
and Managing Director of the appellant himself, the respondents’
case may not be fairly examined. He prays that any retired High
Court Judge may be appointed as an arbitrator by us. We have
not felt inclined to accept this submission, because arbitration
clause states categorically that the difference/dispute shall be
referred ‘to an arbitrator appointed by the Chairman and
Managing Director of IPDL’ (Indian Drugs and Pharmaceuticals
Limited) who is the appellant. This provision in the arbitration
clause cannot be given a go-by merely at the askance of the
respondent unless he challenged its binding nature in an
appropriate proceeding which he did not do.”
23. In Union of India v. M.P. Gupta this Court was considering an
arbitration agreement which provided for the appointment of two
gazetted railway officers as arbitrators. But a learned Single Judge of the
High Court while allowing an application under Section 20 of the
Arbitration Act, 1940, appointed a retired Judge as the sole arbitrator
and a Division Bench affirmed the same. Reversing the said decision, this
Court held that having regard to the express provision in the arbitration
agreement that two gazetted railways officers shall be the arbitrators, a
retired Judge could not be appointed as the sole arbitrator.
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24. In Ace Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corpn. Lid. this
Court considered a somewhat similar clause of another petroleum
corporation which also provided that the arbitration will be by its
Director (Marketing) or some other officer nominated by the Director
(Marketing). The contractor expressed an apprehension about the
independence and impartiality of the named arbitrator and prayed for
appointment of a retired Judge as the arbitrator in his application under
Section 11(6) of the Act.
25. This Court in Ace Pipeline cases held: (SCC p. 316, para 21)
“21. In the present case, in fact the appellant’s demand was to
get some retired Judge of the Supreme Court to be appointed as
arbitrator on the ground that if any person nominated in the
arbitration clause is appointed, then it may suffer from bias or
the arbitrator may not be impartial or independent in taking
decision. Once a party has entered into an agreement with eyes
wide open it cannot wriggle out of the situation [by contending]
that if any person of the respondent BPCL is appointed as
arbitrator he will not be impartial or objective. However, if the
appellant feels that the arbitrator has not acted independently or
impartially, or he has suffered from any bias, it will always be
open to the party to make an application under Section 34 of the
Act to set aside the award on the ground that the arbitrator
acted with bias or malice in law or fact.”
26. The learned counsel for the respondent attempted to distinguish the
said decisions. He submitted that except the last two decisions, all others
were rendered with reference to the provisions of the Arbitration Act,
1940, whose provisions were different from the provisions of the
Arbitration and Conciliation Act, 1996. It was also submitted that the last
two decisions merely followed the legal position enunciated with
reference to the old Act, without considering the provisions under the
new Act.
27. The learned counsel contended that the provisions of the Arbitration
and Conciliation Act, 1996, in regard to the appointment of arbitrators,
are materially different from the provisions of the old Act. It was
submitted that several provisions of the new Act lay stress upon the
independence and impartiality of the arbitrator. Reference was invited to
sub-section (8) of Section 11, sub-sections (1) and (3) of Section 12 and
Section 18 of the Act.
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.
29. While the provisions relating to independence and impartiality are
more explicit in the new Act, it does not mean that the old Act (the
Arbitration Act, 1940) enabled persons with bias to act as arbitrators.
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What was implicit under the old Act is made explicit in the new Act in
regard to impartiality, independence and freedom from bias. The
decisions under the old Act on this issue are therefore not irrelevant
when considering the provisions of the new Act. At all events, M.P. Gupta
and Ace Pipelines are cases under the new Act. All the decisions proceed
on the basis that when senior officers of Government/statutory
corporations/public undertakings are appointed as arbitrators, they will
function independently and impartially, even though they are employees
of such institutions/organisations.
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
impartiality. Section 12(3) enables the arbitrator being challenged if
(i) the circumstances give rise to justifiable doubts as to his independence
or impartiality, or
(ii) he does not possess the qualifications agreed to by the parties.
32. Section 18 requires the arbitrator to treat the parties with equality
(that is to say without bias) and give each party full opportunity to
present his case. Nothing in Sections 11, 12, 18 or other provisions of the
Act suggests that any provision in an arbitration agreement, naming the
arbitrator will be invalid if such named arbitrator is an employee of one
of the parties to the arbitration agreement.
33. Sub-section (2) of Section 11 provides that parties are free to agree
upon a procedure for appointment of arbitrator(s). Sub-section (6)
provides that where a party fails to act, as required under the procedure
prescribed, the Chief Justice or his designate can take necessary
measures. Sub-section (8) gives the discretion to the Chief Justice/his
designate to choose an arbitrator suited to meet the requirements of a
particular case. The said power is in no way intended to nullify a specific
term of arbitration agreement naming a particular person as arbitrator.
The power under sub-section (8) is intended to be used keeping in view
the terms of the arbitration agreement.
34. 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
(as contrasted from an officer of an inferior rank in some other
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Department) to the officer whose decision is the subject-matter of the
dispute.
35. Where however the named arbitrator though a senior officer of the
Government/statutory body/government company, had nothing to do
with the execution of the subject contract, there can be no justification
for anyone doubting his independence or impartiality, in the absence of
any specific evidence. Therefore, senior officer(s) (usually Heads of
Department or equivalent) of a Government/statutory corporation/public
sector undertaking, not associated with the contract, are considered to be
independent and impartial and are not barred from functioning as
arbitrators merely because their employer is a party to the contract.
36. The position may be different where the person named as the
arbitrator is an employee of a company or body or individual other than
the State and its instrumentalities. For example, if the Director of a
private company (which is a party to the arbitration agreement), is
named as the arbitrator, there may be a valid and reasonable
apprehension of bias in view of his position and interest, and he may be
unsuitable to act as an arbitrator in an arbitration involving his company.
If any circumstance exists to create a reasonable apprehension about the
impartiality or independence of the agreed or named arbitrator, then the
court has the discretion not to appoint such a person.”
22. It is important to note that none of the decisions referred to above,
have been expressly overruled by the decision in the case of Bhadra
International (India) Pvt. Ltd. (supra) . All the above decisions and the
decision in the case of Bhadra International (India) Pvt. Ltd. (supra) are by
Benches of same strength. Therefore, accepting the submissions of
judgment debtor would amount to coming to a conclusion that these
decisions have been overruled by Bhadra International (India) Pvt. Ltd.
(supra) which cannot be accepted by this Court.
23. The above decisions viz. Datar Switchgears Ltd. (supra), ACE
Pipeline Contracts (P) Ltd. (supra) and Indian Oil Corporation Limited &
Ors. (supra) were analysed by the Constitution Bench of five Judges of
Hon’ble Supreme Court in the case of CORE (supra) and the Hon’ble
Supreme Court observed that prior to 2015 amendment, the Supreme
Court has upheld unilateral appointment of an arbitrator which gave
unfettered discretion to appoint a sole arbitrator to one of the party to the
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agreement. CORE (supra) was concerned with post 2015 amendment and
the Constitution Bench has considered all the aspects of the ingredients of
arbitration proceedings viz., party autonomy, independence, impartiality,
equality, public private arbitration, quasi judicial function, nemo judex rule,
natural justice, bias, unilateral appointment, Indian Contract Act, etc. This
decision also analysed all the provisions of the Act existing prior to 2015
amendment and post 2015 amendment viz., Sections 11, 12, 18 etc.
However. after analysing the whole law on the subject including automatic
disqualification, likelihood of bias etc., the Hon’ble Supreme Court
approved the decision in the case of TRF Ltd vs. Energo Engineering
Projects Ltd.29 and Perkins Eastman DPC vs. HSCC (India) Ltd.30 which
were decisions dealing with post 2015 amendment but disagreed with the
decision in the case of Voestalpine Schienen GmbH (supra) which too was
post 2015 amendment dealing with appointment of three member Arbitral
tribunal from panel and in paragraph 169, the Hon’ble Supreme Court
made its decision in the case of CORE (supra) applicable prospectively to
appointment of arbitrator from panel after the date of the judgment and
that too only to three member tribunal. In my view, the submissions made
by the learned senior counsel Mr. Kamat on neutrality, independence, bias,
equality, etc. have all been considered by this decision and also the decision
rendered prior to 2015 on unilateral appointment were also considered but
the Constitution Bench of the Hon’ble Supreme Court did not overrule the
decisions rendered prior to 2015, rather it expressly disagreed with
decision rendered qua panel appointment post 2015 amendment. This
clearly indicates that the Constitutional Bench did not disapprove or
impliedly overrule the decisions rendered on unilateral appointment prior
to 2015 though all the aspects of the qualification of an arbitrator were
examined in great detail. Therefore, to say that earlier decisions of the
29 (2017) 8 SCC 377
30 (2020) 20 SCC 760
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Hon’ble Supreme Court dealing with unilateral appointment are no longer
good law even in case of invocation prior to 23 October 2015 and awards
passed pursuant thereto are void, cannot be accepted.
24. The decision in the case of Bhadra International (India) Pvt. Ltd.
(supra) was concerned with the invocation of arbitration post 2015
amendment. The issue before the Hon’ble Supreme Court was not of pre-
2015 amendment. The decision has to be read holistically and not by
reading few observations dehors the context. The Court did refer to Section
18 dealing with equal treatment of parties and did emphasised upon
ensuring impartiality and preserving fairness of the arbitral process but that
would not mean that prior to 2015 this decision can be made applicable.
When in paragraph 37 of Bhadra International (India) Pvt. Ltd. (supra) , the
Hon’ble Supreme Court says what was implicit prior to 2015 has been
made explicit by the Amendment Act of 2015, it does not flow therefrom
that the unilateral appointments made prior to 2015 are void. This reading
would be contrary to the decision of the 5 Judge Constitution Bench
decision in the case of CORE (supra) and also would amount to saying
something which the Hon’ble Supreme Court has not said.
25. Section 12(5) of the Act, 1996 expressly provides for ineligibility of a
person who is appointed as an arbitrator if he falls under any of the
categories specified in the Seventh Schedule of the Act. Post 23 October
2015, there is an express provision making a person ineligible to be
appointed as an arbitrator and, therefore, any proceedings pursuant to such
an appointment are bad in law. Prior to 23 October 2015, there was no
such express provision making a person ineligible. The basic tenets of the
arbitral proceedings enshrined in Sections 7, 11, 12 and 18 of the Act, 1996
which existed even prior to 23 October 2015 may indicate that categories
specified in Seventh Schedule of the Act were implicit or enshrined in these
provisions but merely because they were implicit providing for impartiality,
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unbiased, equal treatment etc., that would not lead to appointment of an
arbitrator being illegal and consequently, the proceedings arising therefrom
being illegal. If a party had any apprehension that any provision of the Act
or basic tenets of arbitral proceedings were not followed or were being
violated then such a party always had a remedy to challenge the same in
accordance with law and if such a challenge is upheld, then certainly the
proceedings would be bad in law but if such a challenge is unsuccessful
then the party is estopped from making such a grievance during execution
proceedings. Accepting submissions of the judgment debtor would amount
to attributing disqualification to arbitrator appointed prior to 23 October
2015 and such an attribution cannot be interpreted retrospectively.
26. A party who does not challenge the eligibility of an arbitrator
appointed prior to 23 October 2015 in any proceedings then he is deemed
to have waived such a right under Section 4 of the Act, 1996. Such a party
who has not challenged the appointment of an arbitrator and invites an
award against him and who does not challenge the award on that ground
or any other ground cannot obstruct the execution proceedings to deprive
successful party of the fruits of the decree. Any other interpretation would
be giving premium to a person who has lost the challenge or who has not
challenged the adjudication proceedings but in recovery proceedings seeks
to demolish the decree. In my view, such an approach and interpretation
would run contrary to the object of resolving the dispute either through
Civil Court or through any other alternate dispute resolution mechanism
and such an attempt should not be encouraged by interpretative process,
which too is not correct.
27. Mr. Kamat, learned senior counsel has also placed reliance upon the
Law Commission Report No.246 before enactment of the 2015 amendment.
The learned senior counsel has relied upon paragraphs 53 to 60 of the said
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Law Commission Report and also note to amendment of Section 12 and
contended that the Law Commission also accepts that the intention of
arbitration process universally and for all times was to be in accordance
with the principles of natural justice, neutrality of arbitrator etc. The Law
Commission also recognises that the decisions of the Hon’ble Supreme
Court on unilateral appointment has tilted against procedural fairness and,
therefore, there was a need to bring in Fifth Schedule and Seventh
Schedule and Section 12(5) by way of amendment.
28. In my view, the report of Law Commission only constitutes the
reasoning and the basis for bringing an amendment to the Act, 1996. When
the Law Commission realised that the decisions of the Hon’ble Supreme
Court has not been in accordance with the principles of natural justice,
neutrality, equality etc., a need was felt to statutorily bring an amendment
which would ensure fair and equal process to be followed in the conduct of
arbitration. On the basis of the report of the Law Commission, it cannot be
submitted that decision of Bhadra International (India) Pvt. Ltd. (supra)
should be made applicable to appointment of an arbitrator prior to 23
October 2015. If the intention of the legislature was to disqualify a person
on the basis of Fifth Schedule or Seventh Schedule read with Section 12(5)
on an implicit basis, then nothing stopped them from making the law
retrospectively applicable from the date when 1996 Act came into force or
from providing that an arbitrator would be ineligible even if appointed
prior to 23 October 2015. The fact that Section 12(5) has been inserted by
Act 3 of 2016 with retrospective effect from 23 October 2015 and not prior
thereto clearly demonstrates that the legislature did not intend to disqualify
a person from being an arbitrator whose appointment was made even prior
to 23 October 2015 on the basis of the Schedule which never existed
though impliedly existed in various provisions of the Act viz., Sections 10,
11, 12, 18 etc. There can be no doubt that what has been made explicit by
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virtue of Fifth Schedule and Seventh Schedule were implicit prior to
23 October 2015, but by virtue of these implicit provisions, the
appointments are not treated statutorily as illegal unless a party aggrieved
successfully challenges the same in accordance with the provisions of the
Act based on provisions existing prior to 23 October 2015.
29. In Aravali Power Company Limited (supra), the issue arose before
the Hon’ble Supreme Court on the objections raised to the appointment of
an arbitrator relying on the provisions post 23 October 2015. In that case,
the arbitrator was appointed prior to 23 October 2015. The Hon’ble
Supreme Court after considering the provisions of Sections 11, 12, 13 and
14 of the Act, 1996 and the decisions rendered with respect to unilateral
appointment and more particularly the decision in the case of Indian Oil
Corporation Ltd. & Ors. (supra) upheld the arbitration agreement providing
for appointment of an arbitrator by the Chairman or Project In-charge by
observing that the amendment is not applicable. The Hon’ble Supreme
Court also considered the aspects of neutrality, bias etc. in the said
decision.
30. In my view, above decision upholds appointment of an arbitrator as
per the arbitration agreement between the parties with regard to the
unilateral appointment if the appointment is prior to 23 October 2015. The
Hon’ble Supreme Court followed the law laid down in Northern Railway
Administration, Ministry of Railway, New Delhi vs. Patel Engineering
Company Ltd.31 and all other cases and observed that the terms of the
agreement ought to be adhered to and/or given effect to as closely as
possible. The Hon’ble Supreme Court further held that in cases governed by
the period prior to 23 October 2015, 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. The
31 (2008) 10 SCC 240
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Hon’ble Supreme Court further observed that unless a cause of action for
invoking jurisdiction under Clauses (a), (b) or (c) of Section 11(6) of the
Act, 1996 arises, there is no question of exercising power under Section
11(6) and an endeavour shall be made to give effect to the appointment
procedure prescribed in the arbitration clauses. The Hon’ble Supreme Court
further observed that in cases post 23 October 2015, if the arbitration
clause is found to be foul with the amended provision, appointment of an
arbitrator would be illegal even if it is in conformity with the agreement. In
my view, this decision again reiterates that if the appointment is prior to 23
October 2015, disqualification which is explicit in Section 12(5) could not
be made applicable impliedly to the appointment made prior to 23 October
2015 for vitiating the arbitration proceedings arising therefrom. This
decision squarely answers the submissions made by the learned senior
counsel for judgment debtor.
31. Similar view has been reiterated by the Hon’ble Supreme Court in
the case of Rajasthan Small Industries Corporation Limited (supra) and
more particularly in paragraphs 23 to 27 and the Hon’ble Supreme Court
after referring to the decision of Aravali Power Company Limited (supra)
and Kochi Cricket Private Limited (supra) held that by virtue of Section 12
as amended by Amendment Act, the Managing Director does not become
ineligible to act if the appointment was prior to 23 October 2015. This view
was once again reiterated by another decision of the Hon’ble Supreme
Court in the case of S. P. Singla Construction Private Limited (supra). This
issue again came up for consideration before the Hon’ble Supreme Court in
the case of Parmar Constructions Company (supra), and the Hon’ble
Supreme Court after considering the decisions in the case of Aravali Power
Company Limited (Supra) and S. P. Singla Construction Private Limited
(supra) reiterated and upheld unilateral appointment of an arbitrator prior
to 2015 and after considering the provisions of Section 12(5) and Section
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21 of the Act, 1996.
32. The submission of learned senior counsel for judgment debtor is that
as per the decision of the Hon’ble Supreme Court in the case of Bhadra
International (India) Pvt. Ltd. (supra), what is explicit now post 23 October
2015 was implicit pre 23 October 2015 and is also based on provisions of
Sections 11, 12, 18 etc., which were on the statute book prior to 23
October 2015. In my view, post 23 October 2015 by express provision
contained in Section 12(5), a person is disqualified from acting as an
arbitrator, if any of the disqualifications referred to in the Seventh Schedule
is attracted. If these were implicit in various provisions referred to by the
learned senior counsel, viz., Sections 7, 11, 12, 18 etc., then the Act as it
existed prior to 23 October 2015 also gave a remedy to a person who was
aggrieved by the appointment of an arbitrator with such an implicit
disqualification. Section 12(3) provided that an arbitrator may be
challenged, if circumstances exist that give rise to justifiable doubts as to
his independence or impartiality or he does not possess the qualifications
agreed to by the parties. It is settled that disqualification cannot be ascribed
impliedly and retrospectively which would be the case if submission made
by the judgment debtor is to be accepted. Prior to 2015 Amendment, there
was no express provision disqualifying a person to be an arbitrator on such
implied criteria.
33. Section 13 of the Act provides for agreement between the parties
on a procedure for challenging constitution of the tribunal. Section 16
provides for Arbitral tribunal to rule on its own jurisdiction, which would
include the implicit disqualification as contended by the learned senior
counsel. Therefore, to say that Bhadra International (India) Pvt. Ltd.
(supra) has laid down that the appointments contrary to implicit
disqualification are bad in law cannot be accepted. The Act, even prior to
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2015, had safeguard to challenge an arbitrator on the ground of neutrality,
bias, impartiality, etc., which according to the learned senior counsel goes
to the root of the matter in case of unilateral appointment. Therefore, even
if parties agreed for appointment of a particular person, they can always
challenge the appointment on the grounds mentioned in the Act.
34. On one hand, the judgment debtor agrees that there is an arbitration
agreement between the parties, but the procedure for appointment of an
arbitrator under that very agreement is being contended to be illegal. An
agreement for arbitration cannot be bifurcated in this manner. Once the
parties have signed the agreement and agreed upon the procedure for
appointment of an arbitrator and the arbitrator is appointed prior to 2015,
they cannot in execution proceedings contend that on account of Bhadra
International (India) Pvt. Ltd. (supra), the appointment of the arbitrator
itself is illegal. The submission on hardship suffered because of such
awards also cannot be accepted. These are commercial contracts which
parties have signed by keeping eyes wide open. Benefits under the contract
has been availed but when dispute arose, parties without challenging the
process invited orders and when it comes to execution such objections are
raised to get away with their obligations. Therefore, even on this count,
submissions of judgment debtor cannot be accepted. The Act gave full
protection but without availing the shield, parties now are using sword to
avoid the execution proceedings.
35. It is well settled that the decision is an authority for what it decides
and not for what flows logically therefrom. The decision has to be
understood based on the facts before the Court and the issue raised therein.
If based on those facts and while rendering its reasoning for deciding the
issue raised, the Court makes any observation, it would not mean that
those observations should be read dehors the context, facts and issue
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before the Court. In the instant case, in the case of Bhadra International
(India) Pvt. Ltd. (supra), the arbitration was invoked post 23 October 2015.
The issue before the Court as per paragraph 29 was with regard to the
appointment of an arbitrator being ineligible by virtue of Section 12(5) of
the Act and whether by conduct, there can be a waiver of such appointment
and whether such a point can be raised for the first time in an application
under Section 34 of the Act. On these facts, the Hon’ble Supreme Court
relied upon Section 18 and its own decision in the case of Dharma
Prathishthanam (supra) while observing that what was implicit earlier has
now been made explicit by way of statutory amendment. It stops there. The
Hon’ble Supreme Court nowhere in the said decision has observed that
appointments made prior to 23 October 2015, even if hit by implicit
disqualifications would render the appointment bad in law. Reading such a
conclusion, as sought by the judgment debtor cannot, in my view, be
correct reading of judgment of the Hon’ble Supreme Court. The
observations made in paragraphs 32 to 37 were for deciding whether the
appointments made contrary to the provisions of Section 12(5) were
illegal. It is settled position that a judgment of the Hon’ble Supreme Court
cannot be read as a statute dehors the context and the issue.
36. In this connection, the decision of the Hon’ble Supreme Court in the
case of Ashwani Kumar Singh vs. UP Public Service Commission & Ors 32 is
relevant and, more particularly, paragraphs 10 to 13 which reads as
under :-
10. Courts should not place reliance on decisions without discussing as to
how the factual situation fits in with the fact situation of the decision on
which reliance is placed. Observations of courts are not to be read as
Euclid’s theorems nor as provisions of the statute. These observations
must be read in the context in which they appear. Judgments of courts are
not to be construed as statutes. To interpret words, phrases and provisions
of a statute, it may become necessary for Judges to embark upon lengthy
discussions, but the discussion is meant to explain and not to define.
32 (2003) 11 SCC 584
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Judges interpret statutes, they do not interpret judgments. They interpret
words of statutes; their words are not to be interpreted as statutes. In
London Graving Dock Co. Ltd. v. Horton2 (AC at p. 761) Lord McDermott
observed: (All ER p. 14 C-D)“The matter cannot, of course, be settled merely by treating
the ipsissima verba of Willes, J., as though they were part of
an Act of Parliament and applying the rules of interpretation
appropriate thereto.
This is not to detract from the great weight to be given to the
language actually used by that most distinguished Judge….”
11. In Home Office v. Dorset Yacht Co.3 Lord Reid said, “Lord Atkin’s
speech … is not to be treated as if it were a statutory definition. It will
require qualification in new circumstances” (All ER p. 297g-h). Megarry, j.
in Shepherd Homes Ltd. v. Sandham (No. 2)4 observed: (All ER p. 1274d-
e) “One must not, of course, construe even a reserved judgment of even
Russell, L.J. as if it were an Act of Parliament;” In Herrington v. British
Rlys. Boards Lord Morris said: (All ER p. 761c)
“There is always peril in treating the words of a speech or a
judgment as though they were words in a legislative
enactment, and it is to be remembered that judicial utterances
are made in in the the setting of the facts of a particular case.”
12. Circumstantial flexibility, one additional or different fact may make a
world of difference between conclusions in two cases. Disposal of cases by
blindly placing reliance on a decision is not proper.
13. The following words of Hidayatullah, J. in the matter of applying
precedents have become locus classicus: (Abdul Kayoom v. CITSa, AIR p.
688, para 19)
“19…. Each case depends on its own facts and a close
similarity between one case and another is not enough
because even a single significant detail may alter the entire
aspect. In deciding such cases, one should avoid the
temptation to decide cases (as said by Cardozo) by matching
the colour of one case against the colour of another. To
decide, therefore, on which side of the line a case falls, the
broad resemblance to another case is not at all decisive.”
(emphasis supplied)
37. The above view on how to read a judgment has been echoed by the
Hon’ble Supreme Court in the case of Commissioner of Income Tax vs. Sun
Engineering Works (P) Ltd.33 and relevant paragraph 39 of said decision
reads as under :-
33 (1992) 4 SCC 363
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HMK COMEXA-59-2016.doc39 ……………….. It is neither desirable nor permissible to pick out a word or a
sentence from the judgment of this Court, divorced from the context of the
question under consideration and treat it to be the complete ‘law’ declared
by this Court. The judgment must be read as a whole and the observations
from the judgment have to be considered in the light of the questions which
were before this Court. A decision of this Court takes its colour from the
questions involved in the case in which it is rendered and while applying the
decision to a later case, the courts must carefully try to ascertain the true
principle laid down by the decision of this Court and not to pick out words or
sentences from the judgment, divorced from the context of the questions
under consideration by this Court, to support their reasonings. In Madhav
Rao Scindia v. Union of India [(1971) 1 SCC 85: (1971) 3 SCR 9] this Court
cautioned:
“It is not proper to regard a word, a clause or a sentence occurring in
a judgment of the Supreme Court, divorced from its context, as
containing a full exposition of the law on a question when the
question did not even fall to be answered in that judgment.”
(emphasis supplied)
38. Similar enunciation on how to read a judgment was provided by the
Hon’ble Supreme Court in paragraph 7 of its decision in the case of Deepak
Bajaj vs. State of Maharashtra34 which reads as under :-
7. It is well settled that the judgment of a court is not to be read
mechanically as a Euclid’s theorem nor as if it were a statute.
“14. On the subject of precedents Lord Halsbury, L.C., said
in Quinn v. Leathem [1901 AC 495 : (1900-03) All ER Rep 1
(HL)] : (All ER p. 7 G-I)
‘[Now before] discussing Allen v. Flood [1898 AC 1 : (1895-
99) All ER Rep 52 (HL)] and what was decided therein, there
are two observations of a general character which I wish to
make; and one is to repeat what I have very often said before
–that every judgment must be read as applicable to the
particular facts proved or assumed to be proved, since the
generality of the expressions which may be found there are
not intended to be expositions of the whole law, but are
governed and qualified by the particular facts of the case in
which such expressions are to be found. The other is that a
case is only an authority for what it actually decides. I
entirely deny that it can be quoted for a proposition that may
seem to follow logically from it. Such a mode of reasoning
assumes that the law is necessarily a logical code, whereas
every lawyer must acknowledge that the law is not always
logical at all.
34 (2008) 16 SCC 14
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(emphasis in original)
We entirely agree with the above observations.
15. In Ambica Quarry Works v. State of Gujarat [(1987) 1 SCC
213] (vide SCC p. 221, para 18) this Court observed:
’18. … The ratio of any decision must be understood in the
background of the facts of that case. It has been said long
time ago that a case is only an authority for what it actually
decides, and not what logically follows from it.’
16. In Bhavnagar University v. Palitana Sugar Mill (P)
Ltd. [(2003) 2 SCC 111] (vide SCC p. 130, para 59) this
Court observed:
’59. … It is also well settled that a little difference in
facts or additional facts may make a lot of difference in
the precedential value of a decision.’
(emphasis in original)
17. As held in Bharat Petroleum Corpn. Ltd. v. N.R.
Vairamani [(2004) 8 SCC 579 : AIR 2004 SC 4778] a decision
cannot be relied on without disclosing the factual situation.
In the same judgment this Court also observed: (SCC pp. 584-
85, paras 9-12)
‘9. Courts should not place reliance on decisions
without discussing as to how the factual situation fits
in with the fact situation of the decision on which
reliance is placed. Observations of courts are neither to
be read as Euclid’s theorems nor as provisions of a
statute and that too taken out of their context.
(emphasis in original) These observations must be read
in the context in which they appear to have been
stated. Judgments of courts are not to be construed as
statutes. To interpret words, phrases and provisions of
a statute, it may become necessary for Judges to
embark into lengthy discussions but the discussion is
meant to explain and not to define. Judges interpret
statutes, they do not interpret judgments. They
interpret words of statutes; their words are not to be
interpreted as statutes. (emphasis supplied) In London
Graving Dock Co. Ltd. v. Horton [1951 AC 737 :
(1951) 2 All ER 1 (HL)] (AC at p. 761), Lord
MacDermott observed: (All ER p. 14 C-D)“… The matter cannot, of course, be settled merely
by treating the ipsissima verba of Willes, J. as though
they were part of an Act of Parliament and applying
the rules of interpretation appropriate thereto. This is
not to detract from the great weight to be given to
the language actually used by that most
distinguished Judge, …”
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10. In Home Office v. Dorset Yacht Co. Ltd. [1970 AC
1004 : (1970) 2 WLR 1140 : (1970) 2 All ER 294 (HL)]
Lord Reid said:
“… Lord Atkin’s speech … is not to be treated as if it
were a statutory definition. It will require qualification
in new circumstances.”
Megarry, J. in Shepherd Homes Ltd. v. Sandham (No.
2) [(1971) 1 WLR 1062 : (1971) 2 All ER 1267] observed:
(All ER p. 1274 d)
“… One must not, of course, construe even a reserved
judgment of even Russell, L.J. as if it were an Act of
Parliament;”
And, in British Railways Board v. Herrington [1972 AC 877
: (1972) 2 WLR 537 : (1972) 1 All ER 749 (HL)] Lord
Morris said: (All ER p. 761 c)“… There is always peril in treating the words of a
speech or a judgment as though they were words in a
legislative enactment, and it is to be remembered that
judicial utterances are made in the setting of the facts
of a particular case.”
11. Circumstantial flexibility, one additional or different
fact may make a world of difference between
conclusions in two cases. Disposal of cases by blindly
placing reliance on a decision is not proper.
12. The following words of Lord Denning in the matter
of applying precedents have become locus classicus:
“Each case depends on its own facts and a close
similarity between one case and another is not
enough because even a single significant detail may
alter the entire aspect, in deciding such cases, one
should avoid the temptation to decide cases (as
said by Cardozo [, J.]) by matching the colour of
one case against the colour of another. To decide
therefore, on which side of the line a case falls, the
broad resemblance to another case is not at all
decisive.
* * *
Precedent should be followed only so far as it marks the
path of justice, but you must cut the dead wood and
trim off the side branches else you will find yourself lost
in thickets and branches. (emphasis in original) My
plea is to keep the path of justice clear of obstructions
which could impede it
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39. In my view, the facts of Bhadra International (India) Pvt. Ltd. (supra)
and Dharma Prathishthanam (supra) were similar and, therefore, the
Hon’ble Supreme Court in the case of Bhadra International (India) Pvt. Ltd.
(supra) referred to the decision in the case of Dharma Prathishthanam
(supra) and observed that what was implicit earlier has now been made
explicit post 2015 amendment. In Dharma Prathishthanam (supra), the
arbitration clause read “Settlement of disputes shall be through arbitration
as per the Indian Arbitration Act”. The Indian Arbitration Act provided for
fairness, equality, impartiality, consensus, etc., in the appointment of an
arbitrator and in the conduct of the arbitration proceedings.
40. It is important to note that the arbitration clause in the case of
Dharma Prathishthanam (supra) did not name a person as an arbitrator nor
was any one of the party given the authority to appoint an arbitrator but it
merely provided that dispute shall be resolved through arbitration as per
the Indian Arbitration Act. Despite that, the party unilaterally appointed an
arbitrator without the consent of the other party and the issue before the
Hon’ble Supreme Court was whether such an appointment without consent
is bad-in-law. The Hon’ble Supreme Court upheld the challenge to the
appointment of an arbitrator unilaterally without the consent of the other
party.
41. In the case of Bhadra International (India) Pvt. Ltd. (supra), the
arbitration was invoked post 2015 but the license agreement was prior to
2015 and the arbitration clause provided for referring the dispute to the
sole arbitrator, being a person to be appointed by the Chairman of the
Authority and in case the designation of Chairman is changed or office is
abolished, then to a person with similar functions. The notice invoking the
arbitration was issued post 23 October 2015. The party relied upon the
arbitration clause whereby the arbitrator was to be appointed by the48 of 71
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HMK COMEXA-59-2016.docChairman of the authority and appointed the arbitrator in accordance with
the said arbitration clause. For the first time in a petition under Section 34,
the appointment of an arbitrator was challenged on the ground that since
the invocation is post 23 October 2015, such a clause is contrary to
provisions of Section 12(5) read with the Seventh Schedule unless the
parties subsequent to disputes having arisen waived such disqualification
by an express agreement in writing. The Hon’ble Supreme Court observed
that such a plea could be raised for the first time in a petition under
Section 34. The Hon’ble Supreme Court further observed that the
appointment made as per arbitration clause was contrary to provisions of
Section 12(5) and there being no waiver in writing, it would amount to a
case of unilateral appointment without the consent of both the parties.
Therefore, the Hon’ble Supreme Court held that such an appointment
contrary to provisions of Section 12(5) is void ab initio without there being
mutual consent as provided in proviso to Section 12(5).
42. Therefore, in my view, in both the cases, i.e. Bhadra International
(India) Pvt. Ltd. (supra) and Dharma Prathishthanam (supra), the facts
were similar inasmuch as in both the cases, there was no consensus
between the parties with regard to appointment and the appointment was
unilateral. Therefore, the Hon’ble Supreme Court referred to the decision in
the case of Dharma Prathishthanam (supra) and observed that non-
consensual appointment was bad-in-law prior to 2015 and relying upon the
said decision held that post 2015 also, such an appointment is bad because
there was no express agreement in writing between the parties waiving
such non-consensual appointment. Therefore, in my view, stretching
decision in the case of Bhadra International (India) Pvt. Ltd. (supra) to
contend that even in case of a named arbitrator or appointment prior to
2015 of an arbitrator by one of the party as per the arbitration agreement
should be held to be void would be reading too much in the case of Bhadra
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International (India) Pvt. Ltd. (supra) and hence, it cannot be made
applicable to such cases. Therefore, the contention raised by learned senior
counsel, Mr. Kamat for the judgment debtor cannot be accepted.
43. Analysis of paragraph nos. 32 to 39 of Bhadra International (India)
Pvt. Ltd. (supra)
(i) The learned senior counsel, Mr. Kamat has placed heavy reliance on
above paragraphs to contend that by virtue of these paragraphs all types of
unilateral appointment made prior to 23 October 2015 is without
jurisdiction. In my view, the said submission cannot be accepted for more
than one reason.
(ii) The first issue, as per paragraph 29 of the said decision, which was
framed by the Hon’ble Supreme Court, was whether the sole arbitrator
could be said to have become ineligible to be appointed as an arbitrator by
virtue of Section 12(5) of the Act, 1996. The contention of the appellant
was that the sole arbitrator appointed by the chairman of the respondent
was ineligible to act as an arbitrator as he was appointed unilaterally post
23 October 2015 and such an appointment was void ab initio by virtue of
Section 12 (5) of the Act, 1996.
(iii) While adjudicating the provisions of Section 12(5) of the Act, 1996
as applicable to the facts before the Court, Hon’ble Supreme Court analysed
the provisions of Section 18 under the caption “Interplay Between Equal
Treatment of Parties and Autonomy”.
(iv) In paragraphs 32 to 35, the Hon’ble Supreme Court analyses Section
18 in the context of Section 12 (5) of the Act, 1996 and relies upon the
decision in CORE (supra) which was again a decision concerning the
provisions of Section 12(5) of the Act, 1996. After interpreting Section 18
in the context of Section 12(5) of the 1996, Act, the Hon’ble Supreme
Court states that equal treatment has long been recognised in the
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constitution of the Arbitral Tribunal for ensuring impartiality and
preserving fairness of the arbitral process.
(v) The Hon’ble Supreme Court, thereafter, in paragraph 36 observes
that even prior to Amendment Act 2015, the Hon’ble Supreme Court in
Dharma Prathishthanam (supra) held that unilateral appointment without
the consent of the other party is illegal and alien to law. When Bhadra
International (India) Pvt. Ltd (supra), refers to unilateral appointment by
referring to the decision in the case of Dharma Prathishthanam (supra) one
has to go to the facts of Dharma Prathishthanam (supra) wherein the
arbitration clause did not provide for a named arbitrator or an arbitrator
appointed by designation or authorised a person to appoint an arbitrator
but it simply said disputes will be resolved as per the Arbitration Act. It is in
that context that paragraph 37 has to be read alongwith other previous
paragraphs, to mean that unilateral appointments of the nature referred to
in Dharma Prathishthanam (supra) have now been articulated with greater
clarity through the amendment Act, 2015.
(vi) Therefore, from a reading of paragraphs 30 to 37 one cannot come to
a conclusion that ratio of Bhadra International (India) Pvt. Ltd (supra) is
that even prior to 2015, unilateral appointments made in scenarios other
than those which was in the nature of Dharma Prathishthanam (supra) are
void ab initio. It is neither a ratio nor an obiter of the Hon’ble Supreme
Court but is a misreading of the said decision to contend that Bhadra
International (India) Pvt. Ltd (supra) lays down, through ratio or through
obiter that all types of unilateral appointments made prior to 2015 of the
nature not that of Dharma Prathishthanam (supra) are alsovoid ab initio .
(vii) Paragraphs 32 to 37 have to be read with paragraph 38 and paragraph
38 states that even though the parties may have unbridled freedom
regarding the procedure for appointing an arbitrator, the exercise of such
freedom must not be in conflict with mandatory provisions of the Act.
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When the Hon’ble Supreme Court refers to mandatory provisions of the
Act, it refers to the provisions of Section 12 (5) of the Act 1996 because
these observations are made while dealing with first issue with regard to
the provision of Section 12 (5) of the Act, 1996.
(viii) Therefore, in my view, the submission made that by virtue of Bhadra
International (India) Pvt. Ltd (supra) all types of unilateral appointments
which are not even of the nature of unilateral appointments referred to in
Dharma Prathishthanam (supra) are void ab initio is incorrect.
(ix) When Bhadra International (India) Pvt. Ltd (supra) refers to implicit
provisions prior to 2015 having been made explicit, it cannot be treated as
obiter in the sense that in all cases of unilateral appointments contrary to
the implicit provisions prior to 2015, are bad in law.
44. The submission of judgment debtor that jurisdiction cannot be
conferred by consent also cannot be accepted in cases where the parties
agree to resolve their disputes as per the Arbitration and Conciliation Act,
1996 because the scheme of the Act as evident from Sections 7, 10, 11, 12,
13 etc. goes on to show that general rule of not conferring jurisdiction by
consent would not be applicable in cases governed by the Arbitration and
Conciliation Act. Parties agree by consent to refer the disputes between
them to arbitration. Number of arbitrators are agreed by the parties
themselves. Appointment and its procedure is agreed by the parties.
Procedure for challenging an arbitrator is also agreed by the parties
themselves. Parties can mutually agree to terminate the mandate of
arbitration or for substitution. Place of arbitration is agreed by the parties.
Language to be used in the proceedings is also left to be decided by the
parties. Extension of time to make an award is also by the consent of the
parties. Under Section 12(5) of the Act, even if a person is disqualified still
he can be appointed as an arbitrator by mutual consent in writing. All these
provisions and scheme of the Act shows that the arbitration is an exception
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to general rule that parties by consent cannot confer jurisdiction except in
those cases where expressly or impliedly certain disputes cannot be
referred to arbitration at all.
45. I have heard all the counsel at length for all the parties including the
amicus curiae and have independently analysed the issue raised for my
consideration though the view, which I have taken is supported by
following decisions of the High Courts :-
(i) State of Maharashtra vs. Morya Infrastructure Pvt. Ltd.
(supra)
(ii) Punjab State Civil Supplies Corporation vs. Ganesh
Rice Mills (supra)
(iii) Avneet Soni vs. Kavita Agarwal (supra)
(iv) West Bengal Housing Board (supra)
46. If the contention of the learned senior counsel for the judgment-
debtor is to be accepted, then it would mean giving retrospective effect to
the provisions of Section 12(5) of the Act, 1996 indirectly, though such
provisions are directly applicable only from 23 October 2015. What cannot
be done directly cannot be achieved by interpretative process indirectly.
47. The decisions of the Delhi High Court relied upon by the learned
senior counsel in the case of Vineet Dujodwala & Ors. (supra) , ABL
Biotechnologies Ltd. & Ors. (supra), Supreme Infrastructure India Limited
(supra) and Bharat Forge Ltd. (supra) are the decisions dealing with
petition under Section 34, wherein one of the grounds for challenge to the
award was the unilateral appointment of the arbitrator and the Court
quashed the award on the ground that the appointments made in the facts
of those cases did not satisfy the ingredients of impartiality, unbiased, etc.
These decisions would not apply to the issue raised for my consideration,
since I am not concerned with a petition under Section 34. If a party adopts
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the procedure provided under Section 34 and succeeds in quashing the
award on the ground of arbitrator not being unbiased, impartial, etc., then
such an award will never come to the Executing Court. Merely because
under Section 34, the Courts in other cases have quashed the award passed
by accepting the challenge to the appointment of an arbitrator, it would not
mean that in all other cases even where there is no challenge, the
Executing Court can hold the arbitrator unilaterally appointed as void ab-
initio. Also, these decisions do not cull out the arbitration agreement to
ascertain what was the type of unilateral appointment which the Court
was concerned with. Therefore, these decisions would not come to the
assistance of the judgment debtor.
48. The decision relied upon by the learned senior counsel Mr. Kamat in
the case of Chhabriya Cloth Stores (supra) was also a case where the award
passed was challenged before the Court on the ground of unilateral
appointment. The party in that case did not concur with the appointment
of arbitrator but challenged the same in accordance with the procedure
provided under the Arbitration Act, 1940. The arbitration clause is not
reproduced in the said decision but the learned Judge has laid emphasis on
no named arbitrator. Similar is the case with respect to decision in the case
of K. K. Modi (supra) since the issue before the Hon’ble Supreme Court was
as to what constitutes an arbitration agreement. It is important to note that
Section 4 of the Arbitration Act, 1940, recognised appointment by a person
designated in the agreement either by name or as the holder of any office
or appointment.
49. I have already observed above that if a party challenges an award on
the ground of appointment of arbitrator being invalid or appointment of
arbitrator itself and said ground is accepted, then certainly that award can
be quashed and set aside but from that it does not flow that in all the cases
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where a party has not challenged the appointment of an arbitrator in
accordance with law, even in those cases, the award becomes void ab initio
on the ground of unfairness, partiality or conduct being non-judicial insofar
as pre 2015 appointment is concerned. Therefore, these decisions cannot
support the submission made by the judgment debtor to contend that in all
cases of unilateral appointment, the awards are bad in law. Same would
also be contrary to various decisions of the Hon’ble Supreme Court referred
to hereinabove where challenge to named arbitrator or in accordance with
the procedure agreed upon has been upheld prior to 2015 amendment
without there being successful challenge.
50. The decision relied upon by the learned senior counsel in the case of
Indian Oil Corporation Ltd & Ors. (supra) also cannot be of any assistance.
In the said decision, the unilateral appointment by a named person or by a
procedure agreed upon was upheld except to the extent that where the
person named as an arbitrator is an employee of a company or body or
individual, other than the State and its instrumentalities. However, this
decision and the paragraphs relied upon cannot be construed to mean that
the appointments made in accordance with the agreed procedure and not
challenged can still be held to be void ab initio by relying upon the decision
in the case of Bhadra International (India) Pvt. Ltd. (supra).
51. The learned senior counsel is justified and fairly stated that the
decision of this Court in the case of DS Textiles (supra) and Ingram Micro
India Pvt. Ltd. (supra) do not directly deal with the issue under
consideration, but the learned Single Judge has merely expressed his
displeasure and views on unilateral appointment and, therefore, to that
extent, it only throws light on the situation prevailing and faced by the
litigants where unilateral appointment is made but that, however, does not
take the case of the judgment debtor any further. Also these cases were
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concerning unilateral appointments post 2015 Amendment and, therefore,
the Court expressed its displeasure.
52. I may now deal with observations made by various decisions of the
Hon’ble Supreme Court and High Court which are relevant in support of
my above analysis.
(i) Aravali Power Company Private Limited (supra) –
In this case, the arbitration clause provided that the dispute will be
referred to the sole arbitration of the project in-charge or to some other
person appointed by the Chairman and Managing Director of NTPC. The
agreement was prior to 2015 and the invocation of arbitration was also
prior to 23 October 2015 but a contention was raised in Section 11
proceedings that on account of Section 12(5) inserted with effect from 23
October 2015, the appointment made in accordance with the arbitration
clause is bad-in-law which was rejected. The relevant paragraphs of the
said decision are reproduced herein :-
“14. At the outset, it must be stated that the invocation of arbitration in the
present case was on 29-7-2015, the arbitrator was appointed on 19-8-2015
and the parties appeared before the arbitrator on 7-10-2015, well before
23-10-2015 i.e. the date on which the Amendment Act was deemed to have
come into force. The statutory provisions that would therefore govern the
present controversy are those that were in force before the Amendment Act
came into effect. We must mention here that both the parties have
addressed their submissions on this premise.
15. Before we consider the present controversy, we may quote, for facility,
Sections 12, 13 and 14 of the 1996 Act as they stood before the
Amendment Act came into force :
“12.Grounds for challenge.–(1) When a person is approached in
connection with his possible appointment as an arbitrator, he shall
disclose in writing any circumstances likely to give rise to justifiable
doubts as to his independence or impartiality.
(2) An arbitrator, from the time of his appointment and throughout
the arbitral proceedings, shall, without delay, disclose to the parties
in writing any circumstances referred to in sub-section (1) unless
they have already been informed of them by him.
(3) An arbitrator may be challenged only if–
(a) circumstances exist that give rise to justifiable doubts as to
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(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 procedure agreed upon by the parties or
under the procedure under sub-section (2) is not successful, the
Arbitral tribunal shall continue the arbitral proceedings and make an
arbitral award.
(5) Where an arbitral award is made under sub-section (4), the
party challenging the arbitrator may make an application for setting
aside such an arbitral award in accordance with Section 34.
(6) Where an arbitral award is set aside on an application made
under sub-section (5), the court may decide as to whether the
arbitrator who is challenged is entitled to any fees.
14. Failure or impossibility to act.–(1) The mandate of an arbitrator
shall terminate if–
(a) he becomes de jure or de facto unable to perform his
functions or for other reasons fails to act without undue delay;
and
(b) he withdraws from his office or the parties agree to the
termination of his mandate.
(2) If a controversy remains concerning any of the grounds referred
to in clause (a) of sub-section(1), a party may, unless otherwise
agreed by the parties, apply to the court to decide on the
termination of the mandate.
(3) If, under this section or sub-section (3) of Section 13, an
arbitrator withdraws from his office or a party agrees to the
termination of the mandate of an arbitrator, it shall not imply
acceptance of the validity of any ground referred to in this section or
sub-section (3) of Section 12.”
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16. In the present case Clause 56 of the GCC provides for arbitration by the
Project In-charge of the Project concerned, and in case such Project In-
charge were unable or unwilling to act, arbitration by any person appointed
by the Chairman and Managing Director. It further provides inter alia that
there would be no objection even if the arbitrator had dealt with the
matters to which the contract related in the course of his duties or had
expressed views on all or any of the matters in dispute or difference.
22.The principles which emerge from the decisions referred to above are:
22.1. In cases governed by 1996 Act as it stood before the Amendment Act
came into force:
22.1.1. 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.
22.1.2. Unless the cause of action for invoking jurisdiction under Clauses
(a), (b) or (c) of sub-section (6) of Section 11 of the 1996 Act arises, there
is no question of the Chief Justice or his designate exercising power under
sub-section (6) of Section 11.
22.1.3. 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.
22.1.4. While exercising such power under sub-section (6) of Section 11, 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.
22.2. In cases governed by 1996 Act after the Amendment Act has come
into force: 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.
23. The observations of the High Court in paras 41-42 as quoted above
show that the exercise was undertaken by the High Court, “in order to
make neutrality or to avoid doubt in the mind of the petitioner” and ensure
that justice must not only be done and must also be seen to be done. In
effect, the High Court applied principles of neutrality and impartiality
which have been expanded by way of Amendment Act, even when no cause
of action for exercise of power under Section 11(6) had arisen. The
procedure as laid down in unamended Section 12 mandated disclosure of
circumstances likely to give rise to justifiable doubts as to independence
and impartiality of the arbitrator. It is not the case of the respondent that
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the provisions of Section 12 in unamended form stood violated on any
count. In any case the provision contemplated clear and precise procedure
under which the arbitrator could be challenged and the objections in that
behalf under Section 13 could be raised within prescribed time and in
accordance with the procedure detailed therein. The record shows that no
such challenge was raised within the time and in terms of the procedure
prescribed. As a matter of fact, the respondent had participated in the
arbitration and by its communication dated 4-12-2015, had sought
extension of time to file its statement of claim.”
(emphasis supplied)
(ii) Rajasthan Small Industries Corporation Limited (supra) –
This was also a case of challenge to the appointment of an arbitrator
in Section 11 proceedings. In this case also, the agreement was prior to
2015 and the arbitrator as per the agreement was Managing Director
himself or his nominee. The invocation was prior to 23 October 2015 but in
the proceedings under Section 11, reliance was placed on Section 12(5)
inserted with effect from 23 October 2015 to challenge the appointment of
the arbitrator, which was negated.
“10. We have carefully considered the contentions of both the parties and
perused the impugned judgment and materials on record. The following
points arise for consideration:
10.1. In the light of the proceedings before the sole arbitrator on various
dates and when the proceedings before the arbitrator were pending,
whether the respondent was right in filing arbitration petition approaching
the High Court under Section 11 and Section 15 of the Arbitration Act,
1996 for appointment of a substitute arbitrator?
10.2. When by virtue of arbitration agreement, Clause 4.20.1 of Schedule 4
(general conditions), parties have agreed that the dispute, differences
between the parties to be resolved by the Managing Director or his
nominee, whether the High Court was right in deviating from the terms of
the agreement between the parties and appointing an independent
arbitrator?
10.3. Whether by virtue of Section 12 of (sic the 1996 Act as amended by)
the Arbitration and Conciliation (Amendment) Act, 2015, the Chairman-
cum-Managing Director has become ineligible to act as the arbitrator?
10.4. Whether the High Court was right in terminating the mandate of the
arbitrator whom the parties have agreed and appointing substitute
arbitrator on the ground that there was delay in passing the award?
20. It is in this backdrop, the respondent has filed the arbitration petition
before the High Court under Section 11 and Section 15 of the Arbitration
and Conciliation Act, 1996 on 13-5-2015 seeking appointment of an
independent arbitrator. As noted earlier, as per Clause 4.20.1 of Schedule 4
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(general conditions), the parties have agreed that all disputes and
differences arising out of or in any way concerning the contract, shall be
referred to the Managing Director himself or his nominees for the sole
arbitration and that there will be no objection to any such appointment on
the ground that the person so appointed is an employee of the Corporation
and that he has dealt with the matter to which the contract relates. When
the parties have consciously agreed that the disputes or differences shall be
referred to the Managing Director himself or his nominee for sole
arbitration and having participated in the arbitral proceedings before
arbitrator for quite some time, the respondent cannot turn round and seek
for appointment of an independent arbitrator.
22. The respondent has not placed any material to show that it has reason
to believe that the arbitrator had not acted independently or impartially.
The respondent has not brought on record any material to entertain an
apprehension that the Managing Director of the appellant Corporation is
not likely to act independently or impartially. On the other hand, as noted
earlier, as per the proceeding of the Arbitral tribunal dated 21-10-2010, the
respondent had expressed its full faith in the sole arbitrator and had also
given a letter dated 21-10-2010 to that effect. The fact that the sole
arbitrator is the Managing Director of the appellant Corporation is not a
ground to raise a presumption of bias or lack of independence on his part.
Arbitration Clause 4.20.1 of Schedule 4 (general conditions) stipulates a
high official i.e. Managing Director of the Corporation not connected with
the contract or the work executed by the respondent. Having participated in
the entire arbitration proceedings and acquiesced in the proceedings, the
respondent is estopped from challenging the competence of the arbitrator.
The respondent was not justified in filing the arbitration petition seeking
appointment of an independent arbitrator.
Whether by virtue of Section 12 as amended by the Amendment Act, the
Managing Director has become ineligible to act?
23. After the amendment to the Arbitration and Conciliation Act, 1996 in
2015, Section 12(5) prohibits the employee of one of the parties from being
an arbitrator. In the present case, the agreement between the parties was
entered into on 28-1-2000 and the arbitration proceedings commenced way
back in 2009 and thus, the respondent cannot invoke Section 12(5) of the
Arbitration and Conciliation (Amendment) Act, 2015. As per Section 26 of
the Amendment Act, the provisions of the Amendment Act, 2015 shall not
apply to the arbitral proceedings commenced in accordance with the
provisions of Section 21 of the principal Act, before the commencement of
this Act unless the parties otherwise agree.
24. In BCCI v. Kochi Cricket (P) Ltd. [BCCI v. Kochi Cricket (P) Ltd., (2018)
6 SCC 287 : (2018) 3 SCC (Civ) 534] , this Court held that the provisions of
the Amendment Act, 2015 (with effect from 23-10-2015) cannot have
retrospective operation in the arbitral proceedings already commenced
unless the parties otherwise agree. In the present case, there is nothing to
suggest that the parties have agreed that the provisions of the new Act shall
apply in relation to the arbitral proceedings.
25. Contending that the sole arbitrator/Chairman-cum-Managing Director,
by virtue of the 2015 Amendment, has become ineligible to act as the
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arbitrator, the learned counsel for the respondent placed reliance upon TRF
Ltd. v. Energo Engg. Projects Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd.,
(2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] In the said case, though the
agreement/purchase order was dated 10-5-2014 (prior to the amendment),
notice invoking arbitration was issued on 28-12-2015 (after the
Amendment Act, 2015) and the letter of the Managing Director nominating
the arbitrator is dated 27-1-2016. In such factual matrix of the case, this
Court has held that the named arbitrator Managing Director of the
respondent therein had become ineligible by operation of law and
therefore, he cannot nominate another person as an arbitrator. In para 54,
it was held as under: (SCC pp. 404-05)
“54. In such a context, the fulcrum of the controversy would be, can
an ineligible arbitrator, like the Managing Director, nominate an
arbitrator, who may be otherwise eligible and a respectable person.
As stated earlier, we are neither concerned with the objectivity nor
the individual respectability. We are only concerned with the
authority or the power of the Managing Director. By our analysis,
we are obligated to arrive at the conclusion that once the arbitrator
has become ineligible by operation of law, he cannot nominate
another as an arbitrator. The arbitrator becomes ineligible as per
prescription contained in Section 12(5) of the Act. It is
inconceivable in law that person who is statutorily ineligible can
nominate a person. Needless to say, once the infrastructure
collapses, the superstructure is bound to collapse. One cannot have
a building without the plinth. Or to put it differently, once the
identity of the Managing Director as the sole arbitrator is lost, the
power to nominate someone else as an arbitrator is obliterated.
Therefore, the view expressed by the High Court is not sustainable
and we say so.”
(emphasis supplied)
26. The facts of the said case are entirely different from the case in hand. In
the said case, when notice invoking arbitration was issued on 28-12-2015,
after the Amendment Act, 2015 came into force with effect from 23-10-
2015, by virtue of which the person named in the agreement became
ineligible to act as the arbitrator. In the case in hand, the arbitration
proceedings started way back in 2009, long before the 2015 Amendment
Act came into force and therefore, the 2015 Amendment Act is not
applicable to the case in hand. The statutory provisions that would govern
the matter are those which were then in force before the Amendment Act.
27. To fortify our view, we can usefully refer to the decision of this Court
in Aravali Power Co. (P) Ltd. v. Era Infra Engg. Ltd. [Aravali Power Co. (P)
Ltd. v. Era Infra Engg. Ltd., (2017) 15 SCC 32 : (2018) 2 SCC (Civ) 642] In
this case, the invocation of arbitration was on 29-7-2015 and the arbitrator
was appointed on 19-8-2015 and the parties appeared before the arbitrator
on 7-10-2015 well before 23-10-2015 i.e. date on which the Amendment
Act was deemed to have come into force. It was held that the statutory
provisions that would therefore govern the controversy are those that were
in force before the Amendment Act came into effect. This Court has
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therefore directed that the arbitration, in pursuance of the appointment of
the arbitrator on 19-8-2015, shall proceed in accordance with law.”
(emphasis supplied)
(iii) I do not wish to reproduce relevant paragraphs of the judgment of
the Hon’ble Supreme Court in the case of S.P. Singla Constructions Private
Limited (supra) and Parmar Construction Company (supra). However,
suffice to say that these two decisions also negated the contention that
Section 12(5) was applicable to the appointment of an arbitrator pursuant
to invocation prior to 23 October 2015. In both these decisions, the
arbitrator was a named arbitrator or was to be appointed by an authority.
The decision in the case of Aravali Power Company Private Limited (supra)
and S.P. Singla Constructions Private Limited (supra) have been referred to
and considered in the case of Parmar Construction Company (supra).
(iv) Integro Finserv Private Limited (supra) –
In this case, the application was filed for substitution of an arbitrator
who was appointed prior to 23 October 2015. The plea for substitution was
based on the amendment by which Section 12(5) was brought into the
statute book. The plea based on Section 12(5) was rejected by this Court.
The decision was rendered by this Court before the decision in the case of
Bhadra International (India) Pvt. Ltd. (supra) The relevant paragraphs are
reproduced hereinunder :-
“20. In Board of Control for Cricket in India v. Kochi Cricket (P) Ltd.2, a Two-
Judge Bench had an opportunity to consider Section 26 of the Arbitration and
Conciliation (Amendment) Act, 2015 with reference to Sections 34 and 36,
which was amended by the Amending Act, and as regards, Section 34, it is
held that Applications u/s. 34 even in cases where arbitration has
commenced prior to 23/10/2015 i.e. date of coming into force, the
Amendment Act, 2015, would apply, since the execution of a decree pertain
to realm of procedure and it was held that no substantive vested right in the
judgment debtor to resist the execution. Section 36, relating to execution of
an Award, attracting the provisions of Order 21 and Order 41 Rule 5 of CPC,
was held to have a retrospective effect.
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25. In the case of Rajasthan Small Industries Corporation Limited v. Ganesh
Containers Movers Syndicate3, the question of the Amendment Act of 2015
once again surfaced with reference to Sections 11(6), 14 and 15(2).
26. Following the law laid down in the case of Kochi Cricket (P) Ltd. (supra),
in the backdrop facts, that the agreement between the parties was entered
into on 28/01/2000 and the arbitration proceedings commenced way back in
2009, and in absence of anything to suggest that the parties had agreed that
the provisions of the new Act shall apply in relation to the arbitral
proceedings, it was held that the Respondent could not invoke Section 12(5).
31. Another decision relied upon by Mr. Kelkar is in the case of Aravali Power
Company Private Limited v. Era Infra Engineering Limited4 and even in this
decision, the arbitration clause, according to Mr. Kelkar, is not similar to the
one, with which I am concerned, but still a conclusion is drawn that in the
cases governed by the Act of 1996, after the Amendment Act coming into
force, if the arbitration clause falls foul of 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.
32. Subsequent to the decision, in the case of Rajasthan Small Industries
Corporation Limited (supra), another decision involving Section 12(5) and its
effect in the backdrop of Section 11(6) is in the case of S.P. Singla
Constructions Private Limited v. State of Himachal Pradesh5, which arose in
the background fact, where a Construction Work Contract, was entered
between the parties on 19/12/2006 and upon completion of the work, with
the extension granted, disputes arose between the parties, as regards the
payment.
50. The only question, which is posed for consideration before me is, whether
an Arbitrator, who is appointed prior to the Amendment Act, 2015, coming
into force where the arbitration proceedings have already commenced,
whether such an Arbitrator would incur ineligibility only in the wake of
provisions introduced and such a person who may be either unilaterally
appointed or who would fall within the ambit of Schedule VII, is forbidden
from continuing as an Arbitrator and deserve to be substituted.
54. In light of the above and the series of decisions, to which a reference is
made, I see no difficulty in arriving at a conclusion that the Application
preferred by Integro Finserv Private Limited, under Section 11 of the
Arbitration and Conciliation Act, seeking appointment of an
Arbitrator/substituted Arbitrator, by relying upon Section 12(5) do not
deserve any consideration, as the facts of the case clearly reveal that the
Loan-cum-Hypothecation Agreement was entered by the
Defendants/Respondents in favour of L & T Finance on 29/05/2012 and even
the Respondent No. 2, executed a Deed of Guarantee. L & T Finance Co. was
compelled to terminate the Loan Agreement by recalling the loan balance,
with accrued charges and enforce the security created under the said
Agreement on 05/10/2013 and in the wake of the arbitration clause in the
Loan-Cum-Hypothecated Agreement and Deed of Guarantee, appointed an
Advocate as a sole Arbitrator to adjudicate the disputes.
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58. However, for the reasons recorded above, since the appointment of an
Arbitrator or his substitution on the ground, of his ineligibility, by applying
Section 12(5) retrospectively, as the Arbitrator has entered reference prior to
the Amendment Act and the proceedings are ongoing before him, I am not
inclined to grant the relief of substituting him on the ground of his de
jure ineligiblity, in the light of the amended provison.”
(emphasis supplied)
(v) State Maharashtra vs. Morya Infrastructure Pvt. Ltd.(supra) –
The decision in the case of Morya Infrastructure Pvt. Ltd. (supra) has
considered Bhadra International (India) Pvt. Ltd. (supra) decision and
rejected the contention of making Section 12(5) applicable for the
appointments made prior to 23 October 2015. Relevant paragraphs of the
said decision are reproduced hereinunder :-
“6. Since the disputes were not referred to Arbitration, the respondent
approached this Court by filing Arbitration Application No. 2 of 2015 under
Section 11 of the Arbitration and Conciliation Act, 1996, seeking
appointment of an Arbitrator. It is the case of the respondent that with the
consent of both parties, a sole Arbitrator was appointed, and by order dated
02/03/2015, the said Arbitration Application was disposed of. As the fact of
appointment of the Sole Arbitrator by the High Court is disputed, we will
deal with this aspect little later in the Judgment.
17. Having considered the rival submissions, the following issues arise for
consideration in the present appeal:
(a) Whether the Arbitrator, Mr. C.D. Fakir, was appointed by the High
Court in exercise of powers under Section 11(6) of the Arbitration and
Conciliation Act, 1996?
(b) Whether there is a deemed waiver of objection to the constitution
of the Arbitral tribunal under Section 4 of the Arbitration and
Conciliation Act, 1996, and alternatively, whether Section 10 is a non-
derogable provision such that there can be no waiver regarding the
constitution of the Arbitral tribunal?
(c) Whether the Arbitrator is disqualified to act in view of
disqualification under Section 12 (1) read with Schedule V of the
Arbitration Act?
(d) Whether the Sole Arbitrator lacked jurisdiction in the absence of a
written consent, post-dispute, under Section 12(5) read with the
Seventh Schedule to the Arbitration and Conciliation Act, 1996?
(e) Whether the amended provision of Section 12 (1) and Section
12(5) read with Schedule V and Schedule VII would apply to the
instant case?
37. It is significant to note that for a period of nearly two years, the appellant
did not take any steps either to seek recall of the order passed by the High
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Court or to raise any objection to the constitution of the tribunal in
accordance with law.
47. The next issue that arises for consideration is whether the mandate of the
arbitral tribunal stands vitiated in view of the alleged disqualification under
Schedule V read with Section 12(1) of the Arbitration and Conciliation Act,
1996, and whether the arbitrator has become ineligible to act as an arbitrator
unless there is express written consent after the dispute has arisen in view of
the statutory bar contained in Schedule VII read with Section 12 (5) of the
Act.
48. The learned Counsel appearing for the appellant submits that the learned
Arbitrator appointed in the present matter is a former employee of the
appellant and was allegedly responsible for sanctioning the project which was
subsequently tendered to the sister concern of the respondent. It is contended
that the Chief Engineer who had dealt with the sanctioning of the project was
nominated as Arbitrator of the respondent/contractor under Clause 3.4.17 of
the agreement, and thus the Arbitrator had live nexus with the respondent.
According to the appellant, such relationship gives rise to justifiable doubts as
to independence and impartiality, thereby attracting disqualification under the
Fifth Schedule read with Section 12(1) of the Arbitration and Conciliation
Act, 1996.
49. The learned Counsel submits that though the objection was raised in the
fifth meeting of the arbitral tribunal, it was raised immediately upon the
appellant becoming aware of the circumstances giving rise to such ineligibility.
According to him, such an objection can be raised even after filing of the
statement of claim or defence, particularly when the ground pertains to
statutory ineligibility.
50. The learned Counsel further contends that by virtue of the Arbitrator
being a nominee of the respondent, he suffered disqualification under the
Seventh Schedule read with Section 12(5). It is urged that Section 12(5) is a
substantive provision which relates to the de jure inability of an arbitrator to
act. By virtue of the non obstante clause contained therein, any prior
agreement between the parties stands overridden the moment it is found that
the relationship of the arbitrator with the parties or the subject matter of the
dispute falls within any of the categories specified in the Seventh Schedule. In
such circumstances, the person becomes ineligible, as a matter of law, to be
appointed as an arbitrator.
51. It is further submitted that such ineligibility can be cured only by an
express agreement in writing entered into between the parties after the
disputes have arisen, whereby they waive the applicability of Section 12(5). In
the absence of such an express written waiver, the ineligibility operates
automatically. In support of these submissions, reliance is placed upon the
judgment of the Hon’ble Supreme Court in Bharat Broadband Network
Limited v. United Telecoms Limited, (2019) 5 SCC 755 : (2019) 3 SCC (Civ)
1 : AIR 2019 SC 2434.
52. The learned Counsel for the appellant submits that the aforesaid
objections raise serious and substantial issues concerning the impartiality and
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independence of the Arbitrator, and therefore prays that the arbitral award be
set aside. The issues raised herein are prima facie serious and may require
examination by this Court. However, before examining the question of
disqualification of the Arbitrator under Schedule V read with Section 12(1) of
the Arbitration and Conciliation Act, 1996, and the Seventh Schedule read
with Section 12(5) of the Act, it becomes necessary to determine whether the
said provisions are applicable to the arbitral proceedings in question, having
regard to the date of commencement of the arbitration proceedings.
53. The Hon’ble Supreme Court in Bhadra International (India) Pvt.
Ltd. v. Airports Authority of India, 2026 INSC 6, while considering the
applicability of the Arbitration and Conciliation (Amendment) Act, 2015, has
held that Section 26 of the Amendment Act, 2015 makes it clear that the
amended provisions shall apply only to arbitral proceedings commenced on or
after 23/10/2015, unless the parties otherwise agree. Section 26 of the
Amendment Act, 2015 reads as under:
“Nothing contained in this Act shall apply to the arbitral proceedings
commenced, in accordance with the provisions of Section 21 of the
principal Act, before the commencement of this Act unless the parties
otherwise agree but this Act shall apply in relation to arbitral
proceedings commenced on or after the date of commencement of this
Act.”
54. The Supreme Court reiterated that, in view of Section 21 of the Arbitration
and Conciliation Act, 1996, arbitral proceedings commence on the date on
which a notice invoking arbitration is received by the respondent, unless there
is a contrary agreement between the parties.
55. Reliance was placed upon the judgment in Board of Control for Cricket in
India v. Kochi Cricket Pvt. Ltd., (2018) 6 SCC 287 : (2018) 3 SCC (Civ) 534,
wherein the Supreme Court has observed as under:
“37. What will be noticed, so far as the first part is concerned, which
states,-
“26. Act not to apply to pending arbitral proceedings. – Nothing
contained in this Act shall apply to the arbitral proceedings
commenced, in accordance with the provisions of section 21 of
the principal Act, before the commencement of this Act unless
the parties otherwise agree…”
is that:
(1) “the arbitral proceedings” and their commencement is
mentioned in the context of Section 21 of the principal Act;
(2) the expression used is “to” and not “in relation to”; and (3)
parties may otherwise agree. So far as the second part of Section
26 is concerned, namely, the part which reads, “…but this Act
shall apply in relation to arbitral proceedings commenced on or
after the date of commencement of this Act” makes it clear that
the expression “in relation to” is used; and the expression “the”
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arbitral proceedings and “in accordance with the provisions of
Section 21 of the principal Act” is conspicuous by its absence.”
“38. That the expression “the arbitral proceedings” refers to proceedings
before an arbitral tribunal is clear from the heading of Chapter V of the
1996 Act, which reads as follows:
“Conduct of Arbitral Proceedings”
The entire chapter consists of Sections 18 to 27 dealing with the conduct
of arbitral proceedings before an arbitral tribunal. What is also important
to notice is that these proceedings alone are referred to, the expression
“to” as contrasted with the expression “in relation to” making this clear.
Also, the reference to Section 21 of the 1996 Act, which appears in
Chapter V, and which speaks of the arbitral proceedings commencing on
the date on which a request for a dispute to be referred to arbitration is
received by the respondent, would also make it clear that it is these
proceedings, and no others, that form the subject-matter of the first part
of Section 26. Also, since the conduct of arbitral proceedings is largely
procedural in nature, parties may “otherwise agree” and apply the
Amendment Act to arbitral proceedings that have commenced before the
Amendment Act came into force In stark contrast to the first part of
Section 26 is the second part, where the Amendment Act is made
applicable “in relation to” arbitral proceedings which commenced on or
after the date of commencement of the Amendment Act. What is
conspicuous by its absence in the second part is any reference to Section
21 of the 1996 Act. Whereas the first part refers only to arbitral
proceedings before an arbitral tribunal, the second part refers to Court
proceedings “in relation to” arbitral proceedings, and it is the
commencement of these Court proceedings that is referred to in the
second part of Section 26, as the words “in relation to the arbitral
proceedings” in the second part are not controlled by the application of
Section 21 of the 1996 Act.”
39. Section 26, therefore, bifurcates proceedings, as has been stated
above, with a great degree of clarity, into two sets of proceedings –
arbitral proceedings themselves, and Court proceedings in relation
thereto. The reason why the first part of Section 26 is couched in
negative form is only to state that the Amendment Act will apply even to
arbitral proceedings commenced before the amendment if parties
otherwise agree. If the first part of Section 26 were couched in positive
language (like the second part), it would have been necessary to add a
proviso stating that the Amendment Act would apply even to arbitral
proceedings commenced before the amendment if the parties agree. In
either case, the intention of the legislature remains the same, the
negative form conveying exactly what could have been stated positively,
with the necessary proviso. Obviously, “arbitral proceedings” having been
subsumed in the first part cannot re-appear in the second part, and the
expression “in relation to arbitral proceedings” would, therefore, apply
only to Court proceedings which relate to the arbitral proceedings. The
scheme of Section 26 is thus clear: that the Amendment Act is
prospective in nature, and will apply to those arbitral proceedings that
are commenced, as understood by Section 21 of the principal Act, on or
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after the Amendment Act, and to Court proceedings which have
commenced on or after the Amendment Act came into force.”
56. The Supreme Court in BCCI (Supra) clarified that the first part of Section
26 makes it explicit that the Amendment Act, 2015 is prospective in nature
and would not apply to arbitral proceedings which commenced prior to
23/10/2015, unless the parties otherwise agree. The commencement of
proceedings must be understood in the manner contemplated under Section
21 of the principal Act. Section 21 of the Arbitration Act provides:
“Unless otherwise agreed by the parties, the arbitral proceedings in
respect of a particular dispute commence on the date on which a request
for that dispute to be referred to arbitration is received by the
respondent.”
57. Thus, the determining factor for applicability of the Amendment Act, 2015
is the date on which the notice invoking arbitration was received by the
respondent. In the present case, it is found that the first notice invoking
arbitration was issued in March 2014 and was received by the respondent.
Thus the notice of arbitration was prior to the commencement of the
Amendment Act, 2015. The respondent thereafter approached the High Court
under Section 11(6) and the High Court disposed of the application by an
order on 02/03/2015. Thus commencement of arbitral proceedings, in terms
of Section 21, had already taken place upon receipt of the notice invoking
arbitration, much prior to the commencement of the Amendment Act in 2015.
58. Since the arbitral proceedings in the present case commenced prior to
23/10/2015, and there is no material to show that the parties agreed to the
applicability of the amended provisions, the Arbitration and Conciliation
(Amendment) Act, 2015 would not apply to the present proceedings.
Consequently, Section 12(1), and the Fifth Schedule of the Act and Section 12
(5) and the Seventh Schedule of the Act, which were introduced by the 2015
Amendment, are not applicable to the present arbitration proceedings. Thus
the disqualification of Sole Arbitrator as provided in the above provisions [i.e.
Schedule V read with Section 12 (1) and Schedule VII read with Section 12
(5)] cannot be invoked qua the present proceedings.”
(emphasis supplied)
(vi) Dharma Prathishthanam (supra) -
Relevant paragraphs of the said decision are reproduced hereinunder :-
“2. ………”Settlement of disputes shall be through arbitration as per the Indian
Arbitration Act.”
7. An arbitrator or an Arbitral tribunal under the scheme of the 1940 Act is
not statutory. It is a forum chosen by the consent of the parties as an alternate
to resolution of disputes by the ordinary forum of law courts. The essence of
arbitration without assistance or intervention of the court is settlement of the
dispute by a tribunal of the own choosing of the parties. Further, this was not a
case where the arbitration clause authorised one of the parties to appoint an
arbitrator without the consent of the other. Two things are, therefore, of
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essence in cases like the present one: firstly, the choice of the tribunal or the
arbitrator; and secondly, the reference of the dispute to the arbitrator. Both
should be based on consent given either at the time of choosing the arbitrator
and making reference or else at the time of entering into the contract between
the parties in anticipation of an occasion for settlement of disputes arising in
future. The law of arbitration does not make the arbitration an adjudication by
a statutory body but it only aids in implementation of the arbitration contract
between the parties which remains a private adjudication by a forum
consensually chosen by the parties and made on a consensual reference.
31. ………….. Secondly, there may be an arbitrator or arbitrators named, or the
authority may be named who shall appoint an arbitrator, then the parties have
already been ad idem on the real identity of the arbitrator as appointed by
them beforehand; the consent is already spelled out and binds the parties and
the court. All that may remain to be done in the event of an occasion arising for
the purpose, is to have the agreement filed in the court and seek an order of
reference to the arbitrator appointed by the parties. Thirdly, if the arbitrator is
not named and the authority who would appoint the arbitrator is also not
specified, the appointment and reference shall be to a sole arbitrator unless a
different intention is expressly spelt out. The appointment and reference – both
shall be by the consent of the parties. Where the parties do not agree, the court
steps in and assumes jurisdiction to make an appointment, also to make a
reference, subject to the jurisdiction of the court being invoked in that regard.
We hasten to add that mere inaction by a party called upon by the other one to
act does not lead to an inference as to implied consent or acquiescence being
drawn. The appellant not responding to the respondent’s proposal for joining in
the appointment of a sole arbitrator named by him could not be construed as
consent and the only option open to the respondent was to have invoked the
jurisdiction of court for appointment of an arbitrator and an order of reference
of disputes to him. It is the court which only could have compelled the
appellant to join in the proceedings.”
(emphasis supplied)
53. To summarize, the Hon’ble Supreme Court prior to 23 October 2015
amendment upheld unilateral appointment of an arbitrator in accordance
with the arbitration agreement between the parties wherein arbitrator is
named by person or designation or authority is given by one party to
another to appoint an arbitrator. Post 23 October 2015, relying on the
provisions of Section 12(5) appointments made prior to 23 October 2015
were challenged, but the Hon’ble Supreme Court rejected such a challenge.
The Constitution Bench of Five Judges while dealing with provisions of
Section 12(5) recognized unilateral appointments, upheld by the Hon’ble
Supreme Court prior to 2015 but reversed such appointments post 2015 in
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case of three member tribunal to be selected from panel and made the
decision applicable prospectively. Insofar as pre and post 2015 is
concerned, where the appointment is not consensual then decision in the
case of Dharma Prathishthanam (supra) would apply. Therefore, in my
view, looked at from the entire conspectus, it cannot be said that the
decision of Bhadra International (India) Pvt. Ltd. (supra) can be made
applicable to the appointment of an arbitrator made prior to 23 October
2015 for holding award passed, in cases other than those similar to Dharma
Prathishthanam (supra), as void.
Conclusion :-
54. Answers to the questions raised are as under :-
Issue No.(i) Whether unilateral appointment of an arbitrator prior to 23
October 2015 is without jurisdiction, and consequently, all proceedings
arising therefrom would be void ab initio ?
Unilateral appointment of an arbitrator prior to 23 October 2015 wherein
the arbitration clause provides for a named arbitrator or by designation or
authorising appointment of an arbitrator by one of the party will not be
without jurisdiction and consequently, the proceedings arising therefrom
would not be void ab initio except in cases, where there is no contractual
clause in the agreement naming a particular arbitrator or conferring on one
of the party the right to unilateral appointment of an arbitrator but the
appointment is made by one of the party in the absence of consent of other
party. In the latter case, it will be void.
Issue No.(ii) Whether unilateral appointment of an arbitrator prior to 23
October 2015 is without jurisdiction, and consequently, all proceedings
arising therefrom would be void ab initio ?
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In view of above, answer to question no.(ii) does not arise, except in case
of non-consensual appointment i.e. 3rd category and in such a case, the
Executing Court would be justified in treating the award as void. However,
if challenge to such an appointment was made unsuccessfully, then the
Executing Court cannot treat the award void.
55. List these matters on 15 September, 2026 for further consideration.
[ JITENDRA JAIN, J. ]
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