Embargo Under Section 12(5) Of The A&C Act Would Not Apply To A Distant Relative Of The Parties: Delhi High Court

The Single Bench of Justice Vibhu Bakhru held that in terms of Explanation 1 and Entry 9 to the Seventh Schedule r/w Section 12(5) only spouse, sibling, child, parent or life partner of a party would be ineligible to be appointed as an arbitrator.

The Court observed that the father-in-law of the niece of the parties cannot be held to be a close relative of the parties to attract the rigours of Section 12(5) of the A&C Act.

Facts

The petitioner and the respondent are brothers and carries out a family business in the name of Manohar Lal Sarraf & Sons Jewellers Pvt. Ltd. (Company). Both the parties have an equivalent share of 33.3% in the compant and the remaining 33.3% is with the elder brother of the parties who is not involved in the controversy.

A dispute arose between the parties related to the family business which the parties decided to refer to arbitration. Consequently, the parties entered into an arbitration agreement dated 04.10.2021 and named Mr. Shubhash Chandra, who also happens to be the father-in-law of their niece, as the arbitrator.

Thereafter, the petitioner filed an application under Section 16 r/w section 12(5) of the act and requested the arbitrator to recuse himself on the ground that he was closely related to both the parties. The arbitrator rejected the application.

Aggrieved by order of the arbitrator, the petitioner filed the application under Section 14 r/w Section 12(5) of the Act, inter alia, praying for the termination of the mandated of the arbitrator and appointment of an independent arbitrator to replace him.

The Contention Of The Parties

The petitioner challenged the mandate of the arbitrator on the following grounds:

• The arbitrator is ineligible to act as an arbitrator in terms of Section 12(5) of the A&C Act as he is closely related to both the parties and the parties have not entered into any agreement to waive the applicability of Section 12(5) of the Act.
• The manner in which the arbitrator has conducted the arbitration proceedings indicates his bias as the arbitrator has passed orders against the persons, not signatories to arbitration agreement or the proceedings.

The respondent objected to the maintainability of the petition on the following grounds:

• None of the circumstances provided under the Seventh Schedule is made out.
• The arbitrator is equally related to both the parties and Entry 9 to the Seventh Schedule is only attracted when the arbitration is related to only one party.
• Moreover, the arbitrator is the father-in-law of their niece, therefore, he is not closely related to the parties.

Analysis By The Court

The Court held that for a person to fall in the category of the 'close family relationship' is it not sufficient that he is normally related to a party, the relationship must be a 'family relationship' and, that too a close one.

The Court referred to Explanation 1 to Seventh Schedule of the A&C Act to observe that a person would be closely related to the parties if he is either the spouse, sibling, child, parent or life partner.

The Court held that in terms of Explanation 1 and Entry 9 to the Seventh Schedule r/w Section 12(5) only spouse, sibling, child, parent or life partner of a party would be ineligible to be appointed as an arbitrator.

The Court observed that the father-in-law of the niece of the parties cannot be held to be a close relative of the parties to attract the rigours of Section 12(5) of the A&C Act.

Case Title: Himanshu Shekar v. Prabhat Shekhar

Citation: 2022 LiveLaw (Del) 526

Date: 31.05.2022

Counsel for the Petitioner: Mr P. Nagesh, Senior Advocate with Mr Rajeev Ahuja and Mr Akshay Sharma, Advocates.

Counsel for the Respondent: Mr Sandeep Sethi, Senior Advocate with Mr Ravi Prakash and Mr Atif Samim, Advocates.

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