S.12(5) Of Arbitration Act Would Be Applicable To Arbitral Proceedings Which Commenced Before 2015 Amendment Act: P&H High Court

The Punjab and Haryana High Court bench of Justice Suvir Sehgal has held that the provision of Section 12(5) of the Arbitration Act would applicable to arbitral proceedings which were initiated prior to 2015 Amendment came into force and continued thereafter.

Brief Facts

This petition has been filed under Section 11 of the Arbitration and Conciliation Act, 1996 (for short 'the Arbitration Act') for constitution of an independent and impartial Arbitral Tribunal.

A bid submitted by the petitioner for construction of a four lane railway over bridge at Level Crossing No. 61-A on Delhi Bathinda Railway Line (hereinafter referred to as 'the Project') was awarded to the petitioner vide letter dated 30.07.2006

The project was required to be completed within 15 months but there were continuous delays and the petitioner sent a chain of letters to the respondents requesting them to increase the contract price and compensate it and by letter dated 04.02.2009.

Respondents were requested to appoint a Conciliator for an amicable settlement. The project was completed on 31.03.2009 and by letter dated 10.09.2009, respondents intimated that the request for conciliation has not been approved and that the petitioners may initiate the process of appointment of Arbitrator as per methodology agreed upon between the parties under Clause 25.3 of the General Conditions of the Contract.

The petitioner nominated Sh. O. P. Goyal as its Arbitrator and the respondents appointed Sh. H.R. Raheja, a serving officer of the respondents and Sh. R.K. Aggarwal, Enginner-in-Chief (Retd.) PWD (B&R) was appointed as the Presiding Officer. After expressing doubts about the impartiality of the Tribunal by its communication, petitioner approached this Court by filing a petition for appointment of an impartial arbitrator on behalf of the respondents but the petition was dismissed vide order dated 14.07.2011.

The Arbitral Tribunal continued with the proceedings but no effective hearing took place. In the meantime, the Arbitration Act was amended and as Section 12(5) was inserted on 23.10.2015, the petitioner submitted an application before the Arbitral Tribunal requesting the arbitrators to file a certificate of disclosure in terms of the amended provision, but the application was disposed of by the Arbitral Tribunal vide its order dated 15.01.2016,

The petitioner filed a petition under Sections 14 and 15 of the Arbitration Act before the learned District Judge, Chandigarh and despite multiple requests by the petitioner, the Arbitral Tribunal continued with the proceedings, which were terminated on 03.10.2017.

As the claims of the petitioner have not been adjudicated, by communication dated 28.10.2017, petitioner nominated a former Judge of this Court as its Arbitrator and requested the respondents to nominate their Arbitrator but the respondents rejected the request by its letter dated 30.11.2017 forcing the petitioner to file an instant petition

Contentions

The petitioner submitted that after the coming into force of the Amending Act, 2015, a fresh cause of action has arisen with the petitioner as the independence and impartiality of the arbitrators is a mandatory requirement under the amended Act. He submits that the finalization of the litigation up to the Supreme Court prior to the introduction of Section 12(5) of the Arbitration Act, does not debar the petitioner from approaching this Court under Section 11 of the Arbitration Act, for appointment of an independent tribunal

Per contra, the respondents submitted that since the objection regarding the independence and impartiality of the Arbitral Tribunal taken by the petitioner, has been rejected up to the Supreme Court, as also petitioner cannot readjudicate the same issue. State counsel submits that in the meanwhile, the arbitral proceeding were continuing and when the petitioner failed to submit the statement of claim an application under Section 25 of the Arbitration Act was moved by the respondents and on 03.10.2017 the Arbitral Tribunal terminated the proceedings.

That the remedy for the petitioner is to approach the Tribunal and petition under Section 11 and 14 of Arbitration Act is not maintainable. State counsel asserts that as the arbitral proceedings commenced prior to 23.10.2015, provisions of the amended Act do not apply

Court's Analysis

The first question before the court whether the provisions of the Section 12(5) of the Arbitration Act, would apply to the arbitration proceedings which have commenced prior to coming into force of the amended Act, on 23.10.2015.

The court, at the outset, referred to amended section 12(5) which states that any person, who falls within any of the categories specified therein, is ineligible to be appointed as an Arbitrator except where the parties by a written agreement agree to waive the applicability of Section 12(5)

The court noted that in Ellora Paper Mills Limited Versus State of Madhya Pradesh, 2022 the Supreme Court has held that sub-section (5) of Section 12 lays down that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subject matter of the dispute falls under any of the categories specified in the Seventh Schedule, he shall be ineligible to be appointed as an arbitrator.

The Supreme Court further observed that in such an eventuality, i.e., when the arbitration clause is found to be foul with the amended provision, the appointment of the arbitrator would be beyond the pale of the arbitration agreement, empowering the Court to appoint such an arbitrator as may be permissible. That would be the effect of the non obstante clause contained in sub-section (5) of Section 12 and the other party cannot insist upon the appointment of the arbitrator in terms of the arbitration agreement

The court noted that in the above judgment, the supreme court declared the appointed arbitrators to be in contravention of section 12(5) of the Arbitration Act even though the arbitration proceedings had started before the commencement of the Amendment Act.

The first question that has arisen for consideration in the present case is squarely covered by Ellora Paper Mills Limited's case (supra). The provision of Section 12(5) of the Arbitration Act would apply to arbitral proceedings which were initiated prior to 23.10.2015 and continued thereafter,the court noted.

The second question before the court whether the participation of the petitioner in the arbitral proceedings before the Arbitral Tribunal during the pendency of the petition under Section 14 of the Arbitration Act amounts to acquiescence.

The court after going through the entire record of hearings before the arbitrator noted that the proceedings were being primarily adjourned on the request of the petitioner. No effective hearing took place before the Arbitral Tribunal. Some applications had been moved by the parties and their responses were filed.

It is apparent that the proceedings were at their very nascent stage as it was yet to be determined as to whether the petitioner is liable to make the security deposit. Mere participation in the proceedings at such a preliminary stage could not lead to the conclusion that the petitioner had acquiesced to the proceedings more so when it repeatedly sought adjournment on account of pendency of proceedings before the courts. It cannot be said that petitioner had joined the proceedings and is debarred from questioning the impartiality of the Tribunal, the court noted.

The next question that needs determination is as to whether after the termination of the arbitral proceedings under Section 25(a) and 32(2)(c) of the Arbitration Act, a petition under Section 11 ibid, be filed and is maintainable

The court while referring to the Delhi High Court in Prime Interglobe Private Limited Versus Super Mill Products, 2022 in in which the judgment of the Supreme Court in Lalitkumar V. Sanghavi (dead) & Anr. vs . Dharamdas V . Sanghavi and Ors. ( 2014) was noticed noted that the petitioner had never lost interest in the proceedings. It had been merely requesting for deferment in order to get the decision of the Court on the eligibility of the Arbitrators, moreso, after the introduction of Section 12(5) in the Arbitration Act.

As has been held by the Delhi High Court, with the termination of the proceedings by the Arbitral Tribunal, everything has come to a close. In view of the mandate of Section 12(5) read with Seventh Schedule of the Arbitration Act, two of the Arbitrators are ineligible to resume office as Arbitrators, therefore, sending the petitioner back to the Arbitral Tribunal to file an application for review/recall of its order would amount to putting the clock back, which is not permissible in view of the amendment in the statute. This Court is therefore, has the power to appoint a substitute Arbitrator(s) in place of the Arbitral Tribunal, proceedings before whom have been terminated, the court noted

Accordingly, the present petition was allowed and arbitrator was appointed.

Case Title: SP Singla Constructions Pvt. Ltd. Vs. State of Haryana and others

Case Reference: ARB-337-2017 (O&M)

Judgment Date: 18/11/2024

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