Section 12(5) Of The A&C Act Would Not Apply To An Arbitration That Commenced Before The 2015 Amendment: Calcutta High Court

The bench of Justice Shekhar B. Saraf held that the 2015 Amendment that added Section 12(5) to the A&C Act would not retrospectively apply to arbitration proceedings that commenced before the Amendment became operative.

The Court held that an arbitral award passed by a unilaterally appointment arbitrator in an arbitration proceeding that commenced before the 2015 Amendment would not be amenable to challenge under Section 34 merely on the ground that by a subsequent amendment to the Act such an appointment procedure has been declared invalid.

The Court also held that a party that has failed to challenge the appointment of the arbitrator on ground of non-disclosure under Section 13 of the Act cannot be permitted to raise such an objection, for the first time, under Section 34 of the Act. It held that non-disclosure under Section 12(1) is not a ground to set aside an arbitration award if no such challenge was ever raised before the arbitrator itself.

Facts

The parties entered into an agreement dated 30.04.2010 whereby the respondent agreed to carry out construction work for the petitioner. Clause 25 of the Agreement conferred right on the petitioner to unilaterally appoint the arbitrator.

Disputes having arisen, the respondent addressed a letter to the petitioner and requested it to appoint the arbitrator. Accordingly, the petitioner appointed the arbitrator who was a retired Engineer-in-Charge, PWD.

The arbitrator passed an award in favour of the respondent. Aggrieved with the award, the petitioner challenged the award inter alia on the ground that the award is a nullity having been passed by a unilaterally appointed arbitrator.

Contention of the Parties

The petitioner made the following submissions to content that the award is a nullity for having been passed by an arbitrator that lacked inherent jurisdiction:

• The arbitrator did not disclose in writing any circumstances which would give rise to justifiable doubts regarding his independence or impartiality. In absence of such a disclosure, the award is liable to be set aside.
• The requirement to file disclosure is a mandatory requirement and in absence of the same, the arbitrator would be lacking jurisdiction to adjudicate the dispute and the consequent award should be set aside on this ground only.
• The arbitrator was unilaterally appointed and such a procedure for the appointment has become invalid after the 2015 amendment act, therefore, the arbitrator in the present case lacked inherent jurisdiction and the award passed by him is not a valid award in the eyes of law and liable to be set aside.

The respondent countered the arguments raised by the petitioner by raising the following objections:

• The 2015 Amendment Act that added Section 12(5) to the principal act came into force with effect from 23.10.2015 and it will apply prospectively.
• Section 26 of the Amendment Act also provides that the amendment would not apply to arbitration proceedings that commenced before the amendment came into force.
• The arbitration proceedings in the instant case commenced prior to the 2015 Amendment came into force, accordingly, rigours of Section 12(5) would not apply and the award cannot be set aside merely on the ground that such an appointment procedure has subsequently been declared invalid.
• The petitioner failed to raise any challenge before the Arbitrator either under Section 12, 13 or under Section 16 of the Act, therefore, it cannot take the objection regarding the non-disclosure or unilateral appointment for the first time under Section 34 of the Act.
• The Supreme Court in the judgment of BCCI v. Kochi Cricket, (2018) 6 SCC 287 has categorically held that the 2015 Amendment would not have any retrospective application.

Analysis by the Court

The Court held that Section 12(5) of the A&C Act, which provides for ineligibility of a person to act as an arbitrator whose appointment falls under any categories mentioned under the Seventh Schedule to the Act, would not apply to an arbitration that commenced before the 2015 Amendment. It held that the Supreme Court in the judgment of BCCI v. Kochi Cricket, (2018) 6 SCC 287 has categorically held that the 2015 Amendment would not have any retrospective application.

The Court further observed that the Parliament vide the 2019 Amendment Act deleted Section 26 of the 2015 Act and inserted Section 87 to the principal act that sought to apply the 2015 Amendment retrospectively to all the arbitration as well as the Court proceedings arising out of such arbitration. However, the deletion of Section 26 and the insertion of Section 87 was declared unconstitutional and invalid by the Supreme Court in its judgment in Hindustan Construction Company, (2020) 17 SCC 324, therefore, the judgment remains the correct position of law.

The Court held that it is a settled principle of law that a statute which creates substantive rights and liabilities on the parties shall be construed to be prospective in operation. The Court further distinguished the judgment of the Supreme Court in Ellora Paper Mills v. State of MP, (2023) 3 SCC 1 wherein the Supreme Court had applied Section 12(5) to an arbitration that commenced before the 2015 amendment came into effect. The Court held that though the notice of arbitration in that case was given before the 2015 amendment, however, the arbitration proceedings had not technical/effectively commenced as there was no progress in the arbitration proceedings for a long time. It held that the judgment in Ellora cannot be read to be giving retrospective application to Section 12(5) and the Court was dealing with an exceptional and extraordinary situation, thus, it cannot be applied to every unilateral appointment made prior to the 2015 Amendmanet.

The Court held that an arbitral award passed by a unilaterally appointment arbitrator in an arbitration proceeding that commenced before the 2015 Amendment would not be amenable to challenge under Section 34 solely on the ground that by a subsequent amendment to the Act such an appointment procedure has been made invalid.

The Court relied on the judgment of the Delhi High Court in Manish Anand v. Fiitjee Ltd, 2018 SCC OnLine Del 7587 to hold that a party that has failed to challenge the appointment of the arbitrator on ground of non-disclosure under Section 13 of the Act cannot be permitted to raise such an objection, for the first time, under Section 34 of the Act. It held that non-disclosure under Section 12(1) is not a ground to set aside an arbitration award if no such challenge was ever raised before the arbitrator itself.

Accordingly, the Court held that it is not open for the petitioner to challenge the award on both the grounds. It held that the application shall be heard on its merit.

Case Title: West Bengal Housing Board v. Abhisek Construction, AP 189 of 2019

Citation: 2023 LiveLaw (Cal) 103

Date: 11.04.2023

Counsel for the Petitioner: Mr. Rohit Banerjee and Ms. Shreyanshee Das

Counsel for the Respondent: Mr. Anirudh Mitra