India: Termination of the Arbitrator under the amended Section 14 of the Arbitration and Conciliation Act, 1996

Last Updated: 2 October 2018
Article by AMLEGALS  

IN THE HIGH COURT OF DELHI

WEST HARYANA HIGHWAYS PROJECTS PVT. LTD V NATIONAL HIGHWAYS AUTHORITY OF INDIA

ARISING OUT OF O.M.P. (T) (COMM.) 28/2017 & IA No.4598/2017

FACTS

The Petitioner had entered into a concession agreement with Respondent for design, engineering, finance, operation and maintenance of Delhi Haryana Border to Rohtak including construction of by-passes in state of Haryana.

The project was to be completed within 24 months from the appointed date (i.e. 02/05/2008) but due to breaches conducted by the Respondent and circumstances not in control of the Petitioner a provisional certificate of completion had been issued by Respondent after a period of five years and seven months (i.e. 26/11/2015).

That due to unresolved disputes, the Petitioner had invoked clause 44.3 of the Agreement which provided that in case of a dispute between the parties, the matter will be decided by referring the same to three arbitrators. In case of dispute in the appointment of third arbitrator, the same shall be referred to ICADR Rules, which will also govern the Arbitration.

Initially the Petitioner had filed a petition under Section 11(6) of the Arbitration Act as the Respondent had failed to appoint an Arbitrator from his side. The Court held that Respondent had nominated Sh. R.K Jain as their arbitrator and since there was no agreement between both the arbitrators with regards to appointment of the Presiding Arbitrator the Respondent approached ICADR and third arbitrator was appointed by ICADR.

Once the tribunal was formed, Sh. R.K Jain was asked to disclose all details in accordance with Section 12 of the Act, as the earlier disclosure made was not in compliance with the Section 12 requirement.

That subsequently a letter had been sent by Sh. R.K. Jain in the format as per Sixth Schedule dated 08.04.2017, wherein it was communicated that he was providing help to two project Directors of NHAI in capacity of an adviser.

Hence, a petition was filed under Section 14 of the Arbitration and Conciliation Act, 1996 for termination of the Arbitrator appointed by the Respondent on grounds of ineligibility as stated in Section 12(5) read with Schedule Seven of the Act.

ISSUES BEFORE HC

Whether a party can approach court directly under Section 14 of Arbitration and Conciliation Act for removal of arbitrator on grounds stated in Section 12(5) along with Schedule Seven of the Act.

OBSERVATION

Reference was made by the Court in the case of H.R.D. Corporation (Marcus OIL and Chemical Division) v. Gail (India) Limited (Formerly Gas Authority of India Ltd.) wherein it was held as below:

"The Seventh Schedule is essentially a subset of the Fifth Schedule of the Act. The grounds indicated in the Fifth Schedule would indicate circumstances giving rise to justifiable doubts as to the independence or impartiality of an arbitrator; it is not necessary that such grounds would render the arbitrator ineligible to act. The Fifth Schedule is only to serve as a guide for the disclosure to be made by an arbitrator. The schematic interpretation of Section 12(1) read with Section 13 of the Act indicates the legislative intent that in such cases, the challenge must be considered by the arbitral tribunal and an unsuccessful challenge before the arbitral tribunal must not be permitted to interdict the arbitral proceedings."

However, the most serious of such grounds are spelt out in the Seventh Schedule and in such cases; the recourse to courts under Section 14 is not precluded as closing a party's recourse to courts in such cases would such cases perhaps only delay the dispute resolution. It is in this context that Section 14(1) of the Act has also been amended by the Amended Act to expressly provide that the arbitrator, whose mandate is terminated, would be substituted by another arbitrator. As indicated above, a person whose relationship with the parties, or counsel or the subject-matter of the dispute falls within the categories stated in the Seventh Schedule would be ineligible to act as an arbitrator notwithstanding prior agreement of the parties being to the contrary. The introduction of Section 12(5) with amendment to Section 14(1) by the Amendment Act while bringing no changes in Section 13 of the act plainly indicate the above legislative scheme of culling out the cases falling under Seventh Schedule from the discipline of Section 13 of the Ct."

The Court while referring to another case of Gurcharan Singh Sahney vs Harpreet Singh Chabbra, 2016 SCC Hyd 90 held that:

"The challenge to an arbitrator under Section 12(3)(a) even if goes unsuccessful, does not disable or incapacitate the arbitrator from continuing the proceedings. whereas Section 14(1)(a) relates to the inability/incapacity of the arbitrator to perform his functions, or where his performance is such as to needlessly delay early completion of arbitration proceedings."

CONCLUDING VIEW

The Court according to the factual position held that the learned Arbitrator due to being on panel of advisers of the Respondent shall be terminated and a new arbitrator is to be appointed by the Respondent within a period of 30 days.

On failure to appoint within specified period, the Petitioner shall be free to approach the Court for the same.

RELIED UPON DECISIONS

The Hon'ble Court put reliance upon the following decisions in forming the view:

  1. H.R.D. Corporation (Marcus OIL and Chemical Division) v. Gail (India) Limited (Formerly Gas Authority of India Ltd.)
  2. Gurcharan Singh Sahney vs Harpreet Singh Chabbra.

REASON OF JURISPRUDENCE

The Court observed that

Firstly, a petition under Section 14 of the Act would lie for removal of arbitrator, if he is disqualified on the basis of grounds (relationships) stated in the Seventh Schedule and he becomes de jure disqualified to act as arbitrator under Section 14(1) (a).

Secondly, the Amendment brings no changes to the scope of Section 13 of the act. It only rules out and differentiates the cases specified in Seventh Schedule out of the purview of Section 13.

Thirdly, if an arbitrator is disqualified on the basis of the grounds stated in Section 12(5) read with Schedule Seven then it will be a waste of time to challenge such termination under Section 13 and if such challenge goes unsuccessful, then the next step would be to wait for award to be passed and challenge the same under Section 34. Hence, if an arbitrator is de jure ineligible under Section 12(5) read with Seventh Schedule of the act then termination can be sought under Section 14(1) (a) directly by filing an application before the Court

AMLEGALS REMARKS

The amendment w.e.f 23rd October, 2015 has brought pragmatic changes in arbitration in India be it appointment of arbitrators, duration of arbitration, fixing fees of arbitrator, removal/termination of arbitrators etc. It has also brought fairness in appointment of arbitrators to the effect that a neutral arbitrator has to be non-serving/working as well.

The remedy of termination of an arbitrator on account of amended Section 14 is available to the parties at any given point of time. The present case clearly demarcates between the consequences and maintainability of the challenges under Schedule Seven and Schedule Five thereof.

This content is purely an academic analysis under "Legal intelligence series".

© Copyright AMLEGALS.

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion, advice or any advertisement. This document is not intended to address the circumstances of any particular individual or corporate body. Reade should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a particular situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.

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