Section 12(5) Of Arbitration & Conciliation Act Which Deals With Ineligibility Of Appointment As Arbitrator Is A Mandatory & Non- Derogable Provision: Supreme Court

The Supreme Court has observed that the Section 12(5) of the Arbitration and Conciliation Act read with the Seventh Schedule, which deals with ineligibility of a person to be appointed as an Arbitrator,  is a mandatory and non-derogable provision of the Act.

The court was considering an appeal filed by Haryana Space Application Centre (HARSAC) against an order of the Punjab and Haryana High Court which had, in light of the Covid Pandemic, granted an extension of 4 months to enable the parties to conclude their arguments within 3 months, and a period of 1 month for the Arbitration tribunal to pass the Award. The Arbitration Tribunal was constituted in the year 2016 in view of the dispute between HARSAC and PAN India Consultants (the latter was awarded the Contract of modernisation of Land Record (including digitisation of cadastral Maps, Integration with records and management of old revenue documents))

While considering the appeal, the bench comprising Justices L. Nageswara Rao, Indu Malhotra and Ajay Rastogi, noted that the appointment of the Principal Secretary, Government of Haryana as the nominee arbitrator of HARSAC which is a Nodal Agency of the Government of Haryana, would be invalid under Section 12(5) of the Arbitration and Conciliation Act, 1996 read with the Seventh Schedule.

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.  Item 5 of the Seventh Schedule of the Act reads as follows : "Arbitrator's relationship with the parties or counsel. The arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration.

Taking note of the above provisions, the bench observed:

"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 bench, therefore, exercised its power under Section 29A(6) of the Arbitration and Conciliation Act, and appointed Justice Kurian Joseph, former SC Judge as the substitute arbitrator, to conduct the proceedings in continuation from the stage arrived at, and pass the Award within a period of 6 months.

Case: HARYANA SPACE APPLICATION CENTRE vs. PAN INDIA CONSULTANTS PVT. LTD. [CIVIL APPEAL NO. 131 OF 2021] 

Coram: Justice L. Nageswara Rao, Indu Malhotra and Ajay Rastogi

Citation: LL 2021 SC 33

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