This case is a part of our Annual Arbitration Review 2018.
Citation: 253 (2018) DLT 122
Court: High Court of Delhi
Coram: Navin Chawla, J.
Date: 14th August 2018
Keywords: Section 11, Worlds Window, Central Warehousing, appointment, arbitrator, challenge, independence, impartiality, Section 12, Section 14.
The court considered two petitions challenging the mandate of the Arbitrator. The first was filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”), requesting the court to appoint an Arbitrator. The second was filed under Section 14 read Section 12 of Act challenging the independence and impartiality of the Arbitrator. The court dismissed the petitions as it found no merit in either of the petitions.
The disputes arose between the parties in relation to an agreement whereby the Respondent appointed the Petitioner as its Strategic Alliance Management Operator. As per the arbitration clause of the agreement, the Managing Director of the respondent appointed the Arbitrator to adjudicate the disputes.
The Petitioner claimed that the disputes had already been adjudicated upon and an Award was passed by the Chairman of the respondent. Therefore, the petitioner moved the Court of Civil Judge (Senior Division), Ghaziabad challenging the maintainability of the arbitral proceedings. The Respondent undertook not to take any coercive steps against the Petitioner.
The Respondent thereafter, filed an application under Section 8 of the Act seeking reference of the disputes to arbitration along with an application under Order 39 Rule 4 of the Code of Civil Procedure, 1908 seeking vacation of the interim order passed by the Court. Both the said applications were dismissed by the Civil Judge (Senior Division), Ghaziabad vide two separate orders. The Respondent being aggrieved by the above orders filed two appeals before the Court of District Judge, Ghaziabad. The said appeals were allowed by the District Judge, Ghaziabad.
The Petitioner then challenged this order before the High Court of Allahabad through two petitions. Both the petitions were dismissed by the High Court of Allahabad, thereby lifting all embargo on continuation of the arbitration proceedings.
It seems that in anticipation of the abovementioned order of the High Court of Allahabad, the present petitions were filed before this Court on 29th May 2018 to put further spoke in continuation of the arbitration proceedings.
The Petitioner contented that after the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as “the Amendment Act”) came into force; as per section 12(5) of the Act, the Managing Director of the respondent could not appoint the Arbitrator. The allegation was based on the fact that complaints were made against the Managing Director and it would be against the principles of natural justice as no person can be a judge in his own cause or appoint a judge in his own cause.
Whether the unilateral appointment of the sole Arbitrator by a party is invalid?
Whether the mandate of the arbitrator stands terminated as there were justifiable doubts to her independence and impartiality?
The court relied on the judgment of Bhayana Builders Private Ltd. v. Oriental Structural Engineers Private Ltd. to hold that there was no merit in the contention of the Petitioner. The appointment of the Arbitrator could not be challenged on the following grounds:
(i) The Arbitrator was unilaterally appointed by the Respondent
The said case also took note of the Amendment Act and observed while it did not take away the power vested in one party to appoint an Arbitrator, it merely increased the burden of ensuring that the appointment was in accordance with the Fifth and Seventh Schedule of the Act by opening the appointment to greater scrutiny.
The Court also noted that the complaint against the Arbitrator was premised on her appointment at the first instance. Therefore, if any of the other arbitrators on the list would have been appointed, the same complaint would have been made by the Petitioner. Hence, the court found no merit in the contention of the Petitioner.
In the second petition, the petitioner alleged that there was likelihood of justifiable doubts as to the independence and impartiality of the Arbitrator as the Arbitrator had a close business relationship with the Respondent.
The learned senior counsel for the petitioner invoked Entry 1 and Entry 12 of the Seventh Schedule to the Act to challenge the appointment of the Arbitrator. It was premised on the previous positions held by the Arbitrator. The Arbitrator was posted as Assistant Collector of Customs Delhi and was posted at the facility (Import Air Cargo Complex) of the respondent between the years 1982 to 1986. Thereafter, in her capacity as Commissioner and Joint Secretary between the period 2001-2007 and as Member, Central Board of Excise and Customs (CBEC) between the years 2011 to 2013, it was argued that the Arbitrator had a close business relationship with the respondent making her ineligible to be appointed as an Arbitrator. It was further submitted that, while the Arbitrator was posted at the facility of the respondent, her salary was being paid by the respondent under cost recovery mechanism and there was a relationship of licensor and licensee between the erstwhile employer of the Arbitrator, that is, the Customs Department and the respondent, thereby making her ineligible from being appointed as an Arbitrator.
Placing reliance on the Judgment of the Supreme Court in HRD Corporation(Marcus Oil and Chemical Division) v. Gail (India) Limited, the learned senior counsel for the petitioner submits that the entries in the Fifth and Seventh Schedule are to be interpreted taking a broad commonsensical approach to the items stated therein.
The Court no merit in this contention. It noted that the Arbitrator was not an employee, consultant or advisor of the Respondent. The past relationship alleged was too remote, being divorced by a period of 32 years. Even by adopting a most fanciful “commonsensical approach”, Entry 1 or Entry 12 of the Seventh Schedule to the Act could not be attracted to the facts of the present case.
(ii) The Arbitrator had a past relationship with the Director of the Respondent
Learned Senior Counsel for the Petitioner further submitted that the Arbitrator had been appointed as a Director of M/s. Dredging Corporation of India in 2016. Another Director in the said M/s. Dredging Corporation of India had been appointed as Director (Finance) of the respondent in 2018. Hence, the Arbitrator and the said Director (Finance) would, have close relationship, making the Arbitrator ineligible to continue as an Arbitrator.
The Court found this submission of the learned Senior Counsel for the Petitioner devoid of any merit. It noted that merely because an erstwhile Co-Director in another company took up employment with the respondent as its Director (Finance) later, much after the appointment as an Arbitrator, it did not make the Arbitrator ineligible under the Seventh Schedule of the Act.
(iii) The Arbitrator did not give the disclosure in the format prescribed under the Sixth Schedule
The Court observed that though the Arbitrator did not give the disclosure in the form prescribed in the Sixth Schedule to the Act, the disclosure was given in the order dated 4 February 2016. It relied on the case of Manish Anand & Others v. FIITJEE Limited, wherein it was held that though the disclosure is not in terms of the Sixth Schedule of the Act, if it discloses the most vital aspect of the same, the mandate of the Arbitrator cannot be terminated.
While ruling that the mandate of the Arbitrator could not be terminated only because she had failed to give her disclosure statement in the form prescribed in the Sixth Schedule to the Act, the court directed that the Arbitrator shall submit to the parties her disclosure statement in the form prescribed before proceeding further with the reference.
(iv) The Arbitrator had committed contempt of court
The learned Senior Counsel for the Petitioner submits that as the Arbitrator had refused to adjourn the arbitration proceedings despite the Respondent giving undertaking that it would not take any coercive steps against the Petitioner, the petitioner had filed an application seeking initiation of contempt proceedings against the respondent and the Arbitrator before the Civil Judge (Senior Division), Ghaziabad. Though the learned Civil Judge found that the proceedings were in violation of the Court order, he decided not to proceed any further against the Arbitrator since no harm or legal injury was caused to the Petitioner. Learned Senior Counsel for the Petitioner contended that as the Arbitrator has been found guilty of having committed contempt of Court, it gives rise to a justifiable doubt as to her impartiality and independence and therefore, she should be removed as an Arbitrator. He further submitted that the respondent has filed an appeal challenging the above order seeking a relief even for the Arbitrator.
The Court dismissed this contention by placing reliance on the case of Bhupender Lal Ghai v. Crown Buildtech Private Limited which held that “a bona fide judgmental error either by a court or an Arbitrator even if committed, cannot, in normal circumstances, be construed as a circumstance giving rise to justifiable doubt about the independence or impartiality of the court or the Arbitrator.”
With regard to the filing of the contempt petition, the Court note that even the Civil Judge had dismissed the application filed by the Petitioner. To accept the prayer of the Petitioner on the basis of the contempt petition filed by it, would be to succumb to the Petitioner’s browbeating and intimidation of the Arbitrator, who in the opinion of the Petitioner, may be inconvenient.
The Court concluded even Arbitrators needed to be protected against such acts of browbeating. It relied on the judgments of Ladli Construction Company Private Limited v. Punjab Police Housing Corporation Limited and Others, Subrata Roy Sahara v. Union of India & Others and R.K. Anand v. Delhi High Court.
(v) The Arbitrator had previously conducted a proceeding in the office of the Respondent
Lastly, the learned Senior Counsel for the Petitioner contended that, as the Arbitrator had conducted a proceeding in the office of the Respondent and was aware of the nature of the disputes even on the first hearing of the arbitration, there is a doubt to her impartiality and independence. He further submitted that from certain emails exchanged between the Arbitrator and the parties with regard to the adjournment of the arbitration proceedings, it is apparent that the Arbitrator was taking instructions from the Respondent thereby making her ineligible to continue as an Arbitrator.
The Court opined that it could not exercise its jurisdiction on this issue. The above contentions had to be taken before the Arbitrator and could not be made a ground for termination of her mandate in these proceedings.
The Court observed that is a classic case of how a party can delay the arbitration proceedings on one pretext or another by filing repeated petitions thereby defeating the very purpose of an Arbitration Agreement. This case highlights the importance of section 13 of the Act while citing the case of HRD Corporation(Marcus Oil and Chemical Division) v. Gail (India) Limited. In that case, the Supreme Court had clarified that where the challenge to an Arbitrator is on the grounds stated in the Fifth Schedule, the same are to be raised before the Arbitrator in accordance with Section 13 of the Act and if the challenge is not successful, the Arbitral Tribunal must then continue the arbitral proceedings under Section 13(4) of the Act and make an Award and the aggrieved party may make an application for setting aside such Arbitral Award in accordance with Section 34 of the Act, on the grounds of purported lack of independence or impartiality of the Arbitrator.