The Arbitration and Conciliation Act provides liberty to the parties to nominate an arbitrator. The appointment of an arbitrator is one of the first steps that the parties take towards resolution of a dispute via the mode of arbitration. In order to repose complete faith in the outcome of the dispute, independence, impartiality and neutrality of the arbitrator is of supreme importance for the parties. Section 12(5) of the Arbitration and Conciliation Act read with Schedule Seven relates to the de jure inability of an arbitrator to act as such. In the case of HRD Corporation Vs. GAIL (India) Limited1, the hon'ble Supreme Court stated that since ineligibility goes to the root of the appointment, Section 12(5) read with the Seventh Schedule makes it clear that if the arbitrator falls in any one of the categories specified in the Seventh Schedule, he becomes "ineligible" to act as arbitrator.
If a person is by law ineligible to be appointed as an arbitrator, then appointment of such a person as arbitrator is void ab initio. Further, appointment of another person by a person so ineligible under Section 12 (5) of the Act is also void ab initio as the mandate of the ineligible person itself stands terminated. However, if a person continues to operate as an arbitrator despite being ineligible for appointment, the court may decide on termination of his mandate upon an application being made by one of the parties under Section 14(2) of the Act.
SUPREME COURT'S STANCE ON APPOINTMENT BY AN INELIGIBLE PERSON
The first authoritative ruling concerning the appointment of arbitrator by an ineligible person was given by the apex court in TRF Limited vs. Energo Engineering Pvt. Ltd.2 The question before the court was whether a person ineligible under Section 12(5) was also ineligible to nominate an arbitrator. Relying on the maxim qui facit per alium facit per se i.e., what one does through another is done by oneself, or as elaborated by court, what cannot be done directly may not be done indirectly by engaging another outside the prohibited area, the court concluded in the affirmative and held that once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator. If the nomination of an arbitrator by an ineligible person is allowed, it will tantamount to carrying on the proceeding of arbitration by himself.
In the case of Bharat Broadband Network Limited v. United Telecoms Limited,3 the Supreme Court while upholding its own decision in TRF Limited v. Energo Engineering Projects Limited, held that appointment of arbitrator by person who is himself ineligible to be appointed as an arbitrator is not valid and void ab initio. This judgement was given retrospective effect and was to be applicable to all arbitrations which commenced from October 23, 2015.
However, the apex court contradicted its own position in the case of Central Organization for Railway Electrification vs. M/s ECI-SPIC-SMO-MCML (JV)4 wherein the Supreme Court upheld the power of the Railways to unilaterally appoint an Arbitral Tribunal.
Thereafter, very recently in the case of Union of India vs. Tantia Constructions Limited5, the apex court disagreed with the judgement of Central Organization for Railway Electrification vs. M/s ECI-SPIC-SMO-MCML (JV) on the reasoning that once the appointing authority itself is incapacitated from referring the matter to arbitration, it does not then follow that despite the incapacity it can still make valid appointments depending on the facts of the case. The court has now referred the issue to a larger bench. However, the larger bench has not been constituted as of now.6
The Supreme Court vide these judgements has effectively added one more ineligibility criterion to the already loaded Seventh Schedule. The current position of India on appointment of arbitrator by an ineligible person is still devoid of clarity.
6. IWorld Business Solutions Pvt. Ltd. vs. Delhi Metro Rail Corporation Ltd, MANU/DE/0797/2021
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