Former Employee Not Disqualified From Acting As An Arbitrator, Even After 2015 Amendment: SC [Read Judgment]

The Supreme Court has held that the Arbitration and Conciliation Act, 1996, does not disqualify a former employee from acting as an arbitrator, provided that there are no justifiable doubts as to his independence and impartiality.

The bench of Justice Abhay Manohar Sapre and Justice Indu Malhotra observed that, even after 2015 amendment, the position remains the same, as Entry 1 to 5th Schedule of the Act does not include "past/former employees."

Background

In this case, Indian Council of Arbitration had raised an objection to the Arbitrator nominated by the State on the ground that he was a retired employee of the State, and there may be justifiable doubts with respect to his integrity and impartiality to act as an arbitrator. ICA informed the state that it had already appointed a nominee arbitrator as well as the Presiding Arbitrator. The State approached the District Court challenging this appointment. The said petition was dismissed by the District Court holding that it is not maintainable. Later, the Punjab and Haryana High Court dismissed the Civil Revision Petition filed by the state on the ground that it could raise the issue of jurisdiction under Section 16 before the arbitral tribunal itself. The state approached the Apex Court assailing this order of the High Court.

Act does not disqualify a former employee from acting as an arbitrator

Agreeing with the contentions raised by the State, the apex court bench observed: "The 1996 Act does not disqualify a former employee from acting as an arbitrator, provided that there are no justifiable doubts as to his independence and impartiality. The fact that the arbitrator was in the employment of the State of Haryana over 10 years ago, would make the allegation of bias clearly untenable."

The court said that the objection of reasonable apprehension of bias raised was wholly unjustified and unsubstantiated, particularly since the nominee arbitrator was a former employee of the State over 10 years ago.

Post Amendment Position Discussed

Even though the case was governed by the pre-2015 amendment law, the bench took note of the Fifth Schedule to the 1996 Act which contains grounds to determine whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator.

The bench said: "Entry 1 of the Fifth Schedule and the Seventh Schedule are identical. The Entry indicates that a person, who is related to a party as an employee, consultant, or an advisor, is disqualified to act as an arbitrator. The words "is an" indicates that the person so nominated is only disqualified if he/she is a present/current employee, consultant, or advisor of one of the parties. An arbitrator who has "any other" past or present "business relationship" with the party is also disqualified. The word "other" used in Entry, would indicate a relationship other than an employee, consultant or an advisor. The word "other" cannot be used to widen the scope of the entry to include past/former employees." 

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