Fresh Arbitrator Can Be Appointed By Court U/S 14 Of Arbitration Act If Proposed Arbitrator Is Ineligible U/S 12(5): J&K And Ladakh HC

The Jammu & Kashmir and Ladakh High Court bench of Chief Justice Tashi Rabstan affirmed that when the arbitration clause is found to be foul with the amended section 12(5) of the Arbitration Act, the appointment of the arbitrator would be beyond the pale of the arbitration agreement. In such eventuality, the court can be approached under section 14 of the Arbitration Act for seeking substitution of the arbitrator.

Brief Facts

The present petition has been filed by the petitioner under Sections 14 and 15 of J&K Arbitration and Conciliation Act, 1997 for appointment of an Independent Arbitrator in substitution of the Sole Arbitrator Mr. Manoj Gupta, Chief Engineer, Jal Shakti (I&FC) Department, Jammu.

The NIT No.27 dated 27.11.2006 was issued by Executive Engineer, Irrigation and Food Control Department, Division Bhaderwah for construction of Kandi Canal RD 0/00 to RD 10/00 kilometers.No response from any contractor necessitated issuance of a fresh NIT No.29 of 2006-07 on 14.02.2007 for construction of Kandi Canal RD 0/00 to RD 10/00 kilometers by the department.

On 17.04.2007, the State Level Contract Committee approved the bid and allotted tender work for the Construction of Kandi Canal RD 0/00 to RD 10/00 kilometers in favour of petitioner firm for an amount of Rs.23.68 Crore on turnkey basis vide Chief Engineer Irrigation and Flood Control Department Jammu's Letter No.IFCJ/Works/4657-60 dated 30.06.2007.

On 28.10.2010, the respondents, all of a sudden, issued a notice dated 28.10.2010 asking for deposit of the balance amount of Rs.3,74,52,923.00 to the petitioner firm. Aggrieved of the said notice, the petitioner firm challenged the said notice by way of filing petition before this court. On 18.12.2016, this Court finally disposed of writ petition bearing OWP No. 1291/2010 along with OWP No.1750/2010 on 18.12.2016 and set aside the impugned notice dated 28.10.2010.

An application under Section 12 of the Arbitration and Conciliation Act, 1997 was filed by the petitioner firm before the Sole Arbitrator to refer dispute before a new Independent Arbitrator who vide his order dated 26.08.2023 dismissed the application without giving any fair opportunity of hearing to the petitioner firm.

Contentions

The applicant submitted that an independent arbitrator is required to be appointed in this case as the continuation of Chief Engineer, Irrigation as Arbitrator in this case is against prohibition contained in Section 12(5) of Arbitration and Conciliation Act, 1996 read with Schedule 7 thereof.

Per contra, the respondents submitted that objections to the petition had been filed on 31.10.2024. In the objections filed inter alia it is averred that the present petition is not maintainable as the Arbitrator appointed is willing to proceed with arbitration. It is also stated in the objections that as per clause 15 of NIT No.29, it is clearly mentioned that all the terms and conditions of agreement executed by contractor with the department shall be binding upon the contractor.

That in the same NIT, Arbitration cases and their conditions are specified wherein it is specifically mentioned that for any dispute between the contractor and department, the decision of Chief Engineer, I&FC Department, Jammu shall be final and binding upon the contractor.

Court's Analysis

The court noted the Supreme Court judgment in Haryana Space Application Centre (HARSAC) & Anr. Vs. M/s Pan India Consultants Pvt. Ltd. (2021) wherein it was held that Section 12(5) of the Arbitration Act, 1996 (as amended by the 2015 Amendment Act) provides that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties, or counsel, falls within any of the categories specified in the Seventh Schedule, shall be ineligible to be appointed as an arbitrator.

The court further observed in the above case that section 12(5) read with the Seventh Schedule is a mandatory and non-derogable provision of the Act. In the facts of the present case, the Principal Secretary to the Government of Haryana would be ineligible to be appointed as an arbitrator, since he would have a controlling influence on the Appellant Company being a nodal agency of the State.

The court further referred to the Supreme Court judgment in Ellora Paper Mills Limited vs. The State of Madhya Pradesh, 2021 wherein the court refuted the submission that once a party has participated in the proceedings by filing the statement of claim cannot seek appointment of a fresh arbitral tribunal under section 11(6) of the Arbitration Act.

The court in the above case held that when the arbitration clause is found to be foul with the amended provision, the appointment of the arbitrator would be beyond the pale of the arbitration agreement, empowering the Court to appoint such an arbitrator as may be permissible. That would be the effect of the non obstante clause contained in sub-section (5) of section and the other party cannot insist upon the appointment of the arbitrator in terms of the arbitration agreement.

The court concluded that in view of the facts and circumstances of the case and the above referred judgments passed by the Supreme Court and in view of amended Section 12(5) of the Arbitration and Conciliation Act, 1996 read with the Seventh Schedule, continuation of earlier arbitrator in this case would be against the law governing the field. Resultantly, this petition is allowed. The mandate of the earlier Arbitrator as well as the proceedings before him is terminated.

Case Title: M/s Mir Associates Construction Company Vs. Superintending Engineer Hydraulic Circle Doda and Anr.

Citation: 2024 LiveLaw (JKL) 313

Case Reference: Arb P No. 68/2024 and CM No. 4022/2024

Judgment Date: 14/11/2024

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