Article

Ambit of Challenge to Appointment of an Arbitrator

Reliance Infrastructure Ltd. Vs. State of Haryana [CR No. 7191 of 2019 (O&M), Decide on 03.06.2020]

EXODIUM

Impartiality and objectivity of the Arbitrator is the rudimentary prerequisite of any arbitration proceeding. The rule against prejudice and unfairness is one of the core principles of natural justice which relates to all judicial as well as quasi-judicial proceedings. Nemo in propria causa judex, esse debet, that is, no one should be made a judge in his own cause, is generally acknowledged as the rule against bias. At the outset, this rule is the requisite of an Arbitrator appointed in rapports of the contract and by the parties to the contract to be independent of the parties. In the Arbitration and Conciliation Act, 1996, earlier there was no definite provision that would ascertain that an Arbitrator so appointed to arbitrate the disputes between parties is undeniably impartial. However, the Arbitration and Conciliation (Amendment) Act, 2015 provided list of considerations for ascertaining independence and impartiality of an Arbitrator. The Amendment Act, 2015 has brought about certain substantial amendments for challenging the appointment of an Arbitrator which are mentioned as below:-

• Incorporation of the V^th schedule that elucidates state of affairs which would give rise to justifiable doubts concerning the impartiality of arbitrators wherein disclosures have to be made by the arbitrator to the parties.
• Section 12 read with the VIth schedule necessitates that a person who has been approached for an appointment as an arbitrator has to give disclosure regarding the state of affairs that are expected to raise justifiable doubts as to his/her impartiality or objectivity to act as an arbitrator.
• VIIth schedule brought about the instances that would make appointment void, notwithstanding previous agreements to the contrary by the parties, conferring de jure incapacity on the arbitrator.
• The Supreme Court has well summarized the ambit of provisions of Fifth to Seventh Schedule of the Act. In HRD Corporation v. GAIL (India) Ltd., (2018) 12 SCC 471 (para 12 on page 488), it was held as under -

“12. After the 2016 Amendment Act, a dichotomy is made by the Act between persons who become “ineligible” to be appointed as arbitrators, and persons about whom justifiable doubts exist as to their independence or impartiality. 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. Once he becomes ineligible, it is clear that, under Section 14(1)(a), he then becomes de jure unable to perform his functions inasmuch as, in law, he is regarded as “ineligible”. In order to determine whether an arbitrator is de jure unable to perform his functions, it is not necessary to go to the Arbitral Tribunal under Section 13. Since such a person would lack inherent jurisdiction to proceed any further, an application may be filed under Section 14(2) to the Court to decide on the termination of his/her mandate on this ground. As opposed to this, in a challenge where grounds stated in the Fifth Schedule are disclosed, which give rise to justifiable doubts as to the arbitrator's independence or impartiality, such doubts as to independence or impartiality have to be determined as a matter of fact in the facts of the particular challenge by the Arbitral Tribunal under Section 13. If a challenge is not successful, and the Arbitral Tribunal decides that there are no justifiable doubts as to the independence or impartiality of the arbitrator/arbitrators, the Tribunal must then continue the arbitral proceedings under Section 13(4) and make an award. It is only after such award is made, that the party challenging the arbitrator's appointment on grounds contained in the Fifth Schedule may make an application for setting aside the arbitral award in accordance with Section 34 on the aforesaid grounds. It is clear, therefore, that any challenge contained in the Fifth Schedule against the appointment of Justice Doabia and Justice Lahoti cannot be gone into at this stage, but will be gone into only after the Arbitral Tribunal has given an award. Therefore, we express no opinion on items contained in the Fifth Schedule under which the appellant may challenge the appointment of either arbitrator. They will be free to do so only after an award is rendered by the Tribunal.” (Emphasis supplied)

The Amendment Act, 2015 emphasized that in case of the appointment of employees as arbitrator, and so as to avoid conflict of interest, disclosure was necessary. The provisions focusing on appointment of employees, past and present, of whichever party as the arbitrators has been recently addressed by the Punjab & Haryana High Court, in the case titled Reliance Infrastructure Ltd. v. State of Haryana ¹, which laid down that the tests laid down by virtue of conditions of 5th to 7th Schedule of the Act has to be applied in a wider perspective. The salient observations in the landmark judgment of Punjab & Haryana High Court is discussed hereunder -

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¹ Reliance Infrastructure Ltd. v State of Haryana and others, Civil Revision No. 7191 of 2019.

FACTUAL BACKGROUND

• The Petitioner, Reliance Infrastructure Limited (RInfra) was awarded Engineering, Procurement and Construction Contract (EPC) for 2x600 MW Coal-fired Thermal Power Plant at Khedar, Hisar, by Respondent No. 2-Haryana Power Generation Corporation Ltd. (HPGCL). The EPC contract consisted of an Arbitration Clause which was invoked by the Petitioner, requesting that Arbitrator be appointed by the Government of Haryana.
• On request of Petitioner, Government of Haryana appointed Retd. IAS Officer, Former Chief Secretary of State of Haryana as Sole Arbitrator. The Petitioner did not accept the appointment of Arbitrator on the ground that Arbitrator is ineligible in terms of the qualifications prescribed under Amendment Act, 2015, in particular Section 12 and Schedules V and VII thereof. The Petitioner approached the High Court u/s 11 of the Act seeking declaration that the appointment of Former Chief Secretary was illegal and for appointment of another Arbitrator. The High Court dismissed the petition of the Petitioner vide judgment dated 27.10.2016.
• In consequence of the dismissal, the Petitioner approached the Supreme Court² . However, while the judgment was pending, the Petitioner unconditionally withdrew the matter and subsequently requested the Supreme Court to grant extension of time for completion of arbitral proceedings. The Supreme Court ordered that the time period of 12 months as prescribed under Section 29A of the Act shall be counted from the date of order of Supreme Court vide which the SLP was dismissed as withdrawn earlier.
• In the light of these on-going proceedings, the Petitioner took another turn, relying upon judgment M/s TRF Limited v Energo Engineering Project Ltd³ and filed a petition under section 14 of the Act before Special Commercial, Gurugram praying that the aforesaid appointment of the arbitrator was void ab-initio and henceforth such an Arbitrator had no mandate to arbitrate.
• This petition under Section 14 was dismissed vide order dated 24.09.2018, which the Petitioner had challenged by way of the present revision petition. The petition was originally filed as Civil Writ Petition No.27320 of 2018. However, subsequently, the said civil writ petition was treated as a petition under Article 227 of the Constitution of India vide order dated 22.10.2019.

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² SLP No.33777 of 2016
³ AIR 2017 SC 3889.

ARGUMENTS ADVANCED BY THE PETITIONER

• Appointment is barred by provisions of fifth and seventh schedule of the Act -
  Petitioner contended that the purported appointment of Arbitrator, being a retired Chief Secretary of the State of Haryana, is illegal, non-est and in violation of the requirements of Section 12, Schedules 5 and 7 of the Arbitration and Conciliation (Amendment) Act, 2015 and therefore no appointment in the eyes of law. Since arbitrator was already acting as an arbitrator in a similar dispute between the very same parties being conducted under the unamended Arbitration & Conciliation Act, 1996. Her past relationship with the Government of Haryana and as a consequence with the Respondent Corporations (whose officers, including the Principal Secretary reported directly to her) give rise to justifiable cause for application of Schedule 5 and Schedule 7 of the Arbitration and Conciliation (Amendment) Act, 2015.
• No disclosure was given as per the mandate of Section 12 read with Sixth Schedule of the Act.
  It was contended that the Arbitrator did not make disclosure in the form provided in the VI th Schedule as mentioned in Section 12 of the Act, which is a mandate for a valid appointment. Therefore such a non-disclosure makes Sole Arbitrator de jure or de facto incapable to exercise his/her functions.
• Arbitrator being a retired Chief Secretary of the State was disqualified to be appointed as an Arbitrator in terms of para 1 of the Seventh Schedule.
  Another issue raised by the Petitioner was that since the Ld. Arbitrator had retired as Chief Secretary of the State of Haryana, she could not have been appointed as an arbitrator in view of the bar under para 21 of the Seventh Schedule
• Recommendation of Respondent Corporation to appointing authority while appointment was under consecration makes the appointment void ab intio:-
  The Petitioner, while relying upon official notings of Respondent, contended that the appointment of the Arbitrator had been made on the recommendation of the Managing Director of Respondent Corporation and the same was hit by the following judgments of the Supreme Court:
  1. Perkins Eastman Architects DPC vs HSCC Ltd., 2019 SCC OnLine SC 1517;
  2. Bharat Broadband Network Ltd. v. United Telecoms Ltd., 2018 SCC OnLine SC 3276;
  3. TRF Ltd. vs Energo Engg. Projects Ltd., (2017)8 SCC 377; and
  4. HRD Corporation v. GAIL (India) Ltd., (2018) 12 SCC 471
  

ARGUMENTS ADVANCED BY THE RESPONDENT

• The remedy under section 14 of the Act is not tenable:-
  It was argued that remedy accessible to the petitioners was under Section 12 of the Act to approach the Arbitrator. The aforementioned course was not exercised by the Petitioner and therefore, the present petition was not tenable.
• Issue of Disclosure stood settled:-
  Respondents contended that the issue of disclosure was settled by the High Court in judgment dated 27.10.2016 ⁴, wherein it was categorically held that the only disclosure that was imperative to be made was that the Sole Arbitrator was the former Chief Secretary of the State. In addition to this Petitioner previously filed Special Leave Petition to adjudicate this issue but soon after unconditionally withdrew the same. Hence, in the light of the aforementioned, Petitioner is now barred to highlight the issue of disclosure which has already been settled.
• Documents obtained under RTI:-
  Petitioner had obtained some documents under the RTI Act. The documents publicized that the Managing Director of the Respondent Corporation wrote to ACS (Power) suggesting the name of Ex-Chief Secretary, Haryana to be appointed as the Sole Arbitrator. Said note/proposal was subsequently approved by the Chief Minister and thereafter vide order dated 29.7.2016 the Governor of Haryana appointed Ex-Chief Secretary, Haryana as the Sole Arbitrator to examine and decide the issues between the parties. It was argued that information under the RTI Act was admittedly received by the Petitioner on 4.11.2016. After receiving this information, the petitioner chose not to file a review of the judgment dated 27.10.2016 and thus, no grievance could have been raised at a belated stage.
• It was urged that a perusal of the alleged recommendation notings does not even remotely suggest that the appointment had not been made by the competent authority. In fact, the appointment process was initiated by Respondent No. 1 since the request for appointment of arbitrator made was addressed to the Chief Engineer of Respondent. Accordingly, the action had to be initiated from the Office of Respondent. The name of the Ld. Arbitrator was only referred to in the context of her having gained some experience of the contracts of such like nature. The file was put up before various authorities for the needful.

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⁴ Arbitration Case no. 166 of 2016 dated 27.10.2016

• Application of Principle of Waiver:-
  The Respondent relied on section 4 of the Arbitration & Conciliation Act, 1996 to put forth that the principle of waiver was applicable to the instant case. In addition to this relied on the judgment APSRTC & Others Vs. S. Jayaram ⁵ wherein Supreme Court held that "To constitute waiver there must be an intentional relinquishment of a known right or the voluntary relinquishment or abandonment of a known existing legal right conduct such as warrants an inference of the relinquishment of a known right or privilege." The petitioner in the instant case addressed to the Sole Arbitrator that there was no objection/challenge about the appointment of Sole Arbitrator. Subsequently, Petitioner requested the Supreme Court to grant an extension of time for completion of arbitral proceedings. The Supreme Court expressly stated that one year period for confirming the award shall be calculated from the Order of Supreme Court. Hence, the Petitioner cannot allege that the appointment was void ab-initio at such a belated stage in view of the principle of waiver.
• Non-applicability of Rulings relied upon Petitioner:-
  Respondents contended that rulings relied upon by the Petitioner do not apply to the instant case, for the reason being that, in the instant case the State of Haryana is an appointing authority which is not a party to the contract amid the parties.

VERDICT

• Former employees not barred:-
  The Court held that the appointment of Ex-Chief Secretary is not void ab-initio, for the reason being that, there was no financial, business, or professional relationship amongst the Ex-Chief Secretary and the Respondent. Moreover, previous engagement cannot be a ground for the removal of the Ex-Chief Secretary. In the present case, the Sole Arbitrator was the Arbitrator for both the parties and the Petitioner always had knowledge about it. Therefore, impartiality and objectivity of arbitrators do not proscribe the employment of previous employees being an arbitrator.
• Sufficient disclosure was made:-
  The Court held that in the present case Arbitrator was bound to disclose the dictum that he/she was former Chief Secretary of State of Haryana and the same was adequately disclosed, which is evident from the order of the Government of Haryana which was forwarded to both the parties to the dispute.
• Disclosure under section 12(1) does not necessarily render Arbitrator ineligible:-
  The court stated that the present case is an illustration wherein a disclosure was bound to be made and was adequately made, yet the prevailing circumstances did not render Sole Arbitrator so appointed to be ineligible. Further Court held that upon discovery of the ineligibility of the arbitrator, his/her appointment can be objected and challenged under Section 13 or 16 and not under Section 11.

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⁵ (2004) 13 SCC 792.

CONCLUSION

• High Court of Punjab and Haryana validated the appointment as there was no financial, business, or professional relationship of any kind that is direct or indirect. In addition to this, there was no justifiable doubt as to his/her impartiality. It was held the petition filed by Petitioner under Section 14 of the Act was an endeavor to re-initiate the matter which had already obtained finality.
• The Court further held that Supreme Court in the case of Perkins Eastman Architects DPC & Anr. vs. HSCC (India) Ltd.⁶ , while considering the decision in M/s TRF Limited, held that that there are two categories of cases - one where the Managing Director himself is named as an Arbitrator with an additional power to appoint anyone else as an Arbitrator and second, where though the Managing Director is not authorised himself to act as an Arbitrator but is authorised to appoint anyone else as an Arbitrator. The Court observed that the argument of the Petitioner deserves to be rejected simply on the ground that it was not the case set up that the Managing Director was the Sole Arbitrator or that the power to appoint the Sole Arbitrator vested with the Managing Director under the contract/agreements. The Sole Arbitrator was admittedly appointed by the Government of Haryana which was neither a party nor a signatory to the contract/agreements making the appointment valid.
• To sum up, the amendments of the 2015 Act concerning Section 12 read with schedule Vth, VIth and VIIth have to be comprehended such so as to avoid conflict of interest between the parties and at the same time preserving the principles of impartiality, objectivity, and principles of natural justice.

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⁶ 2019 SCC Online SC 1517

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