Power Of General Manager Of Employer To Confirm Nomination Of Arbitrator By The Contractor Runs Contrary To Principles Of Impartiality And Independence: Bombay High Court

The bench of Justice Bharati Dangre held that for an appointment of arbitrator from a panel unilaterally prepared by a party, it must be broad and diverse to allow free choice to the other party and any deviation would be hit by Section 12(5) of the Act.

Facts

The parties entered into an agreement dated 14.03.2019, wherein the Central Railway awarded the petitioner Advertisement Rights for display through Internal Media in 35 rakes maintained in Kurla car shed for five years.

Due to the covid pandemic and restrictions under section 144 of the Cr.P.C, commutation through Railways was restricted, leading the petitioner to request renegotiation of the contract terms. The Railways declared the lockdown period as FORCE MAJEURE and non-operational period as DIES NON. Relief in payment of license fee was only granted to contracts completing their full term and submitting a declaration.

On 13.10.2020, the petitioner signed an unfair, unilateral, and one-sided undertaking, and the respondent provided a formula for paying the license fee. The applicant paid Rs. Four lakhs as license fee and requested to waive off penal interest from 23.06.2020 to 31.03.2021.

The petitioner then invoked force majeure in a letter to the Commercial Manager, expressing intention to terminate the contract and refusing to pay the license fee. Show cause notices and demand notices were received for payment of license fees along with penal interest. When the petitioner moved a petition u/s.9 for interim reliefs, it was informed that the security furnished had already been encashed.

Thereafter, the petitioner invoked the arbitration clause, upon the failure of the parties to mutually appoint the arbitrator. The petitioner approached the High Court under Section 11(6) of the A&C Act.

Submissions by the Parties

The petitioner made the following submissions:

• The appointment procedure provided under the agreement is invalid as it provides for appointment from a narrow panel of arbitrator.
• The procedure is also invalid as the General Manager of the Respondent cannot act as an appointing authority.
• The appointment procedure is also invalid as the respondent is permitted to appoint 2/3^rd of the arbitral tribunal and the nomination by the petitioner is subject to confirmation by the respondent.
• The judgment in CORE has been referred to a larger bench pursuant to disagreement by two coordinate benches of the Apex Court.

The respondent made the following counter-submissions:

• The appointment procedure is upheld by the Supreme Court in CORE judgment wherein the Court has approved an identical appointment procedure.
• The Apex Court in Voestalpine has also held that there is no prohibition in law on the appointment of retired government employees as arbitrators since they bring in technical expertise with them.

Analysis by the Court

The Court observed that the clause provided for appointment of a 3 member arbitral tribunal out of a panel of 4 names maintained by the respondent. It observed that out of the 4 names, the petitioner is to choose 3 names and out of those names, the respondent would appoint one person as the petitioner's nominee. Further, the remaining two arbitrators including the presiding arbitrator is to be appointed by the respondent only.

The Court held that appointment of arbitrator from a narrow panel of 4 arbitrators is violative of Section 12(5) of the A&C Act. It held that such practice of preparing narrow panels restricts free choice and give rise to suspicion that favourites are chosen.

The Court relied upon the judgment of the Apex Court in Voestalpine to hold that a panel unilaterally prepared by a party must be broad and diverse to avoid any possible conflict with Section 12(5).

The Court held that independence and impartiality of arbitrators is a hallmark of arbitration and the rule against bias is one of the fundamental principles of natural justice, which is applicable with equal force in all quasi-judicial proceedings

Further, the Court held that power of General Manager of Employer to confirm nomination of arbitrator by the Contractor runs contrary to principles of impartiality and independence.

Accordingly, the Court allowed the petition and appointed a sole independent arbitrator.

Case Title: Telex Advertising Pvt Ltd v. Central Railway, Arbitration Application No. 6984 of 2023

Date: 18.04.2024

Counsel for the Petitioner: Mr. Mohammed Zain Khan with Mr.Ashraf Kapoor

Counsel for the Respondent: Mr. N.R. Bubna with Ms.Pooja Malik

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