Challenge Against Appointment Of Arbitrator Can Be Entertained Only After Passing Of The Award: Rajasthan High Court Reiterates

The Single Bench of Justice Pankaj Bhandari ruled that where the arbitration clause provided for referring the disputes to the Empowered Committee of Ministry of Rural Development, the Empowered Committee cannot be said to be an interested party, ineligible to be constituted as an Arbitral Tribunal under Section 12(5) of the A&C Act, since it was not a party to the agreement between the Rajasthan Skills and Livelihoods Development Corporation and the applicant.

The applicant- Surya Wires Private Limited, was awarded a Project by the respondent- Rajasthan Skills and Livelihoods Development Corporation, and a Memorandum of Understanding (MoU) was executed between the parties. The respondent terminated the Project without issuing a notice as contemplated in the Agreement. Against this, the applicant filed an appeal before the Chairman of the respondent Corporation, which was dismissed. Thereafter, the applicant invoked the arbitration clause and filed an application under Section 11 of the A&C Act before the Rajasthan High Court seeking appointment of an Arbitrator.

Perusing the Agreement, the Court noted that the relevant clause invoked by the applicant provided for referring all claims or disputes arising in connection with the MoU to the Board of Directors of Rajasthan Skill and Livelihoods Development Corporation and later to the Empowered Committee of Ministry of Rural Development, Government of India. Further, the clause provided that the decision of the Empowered Committee shall be final and binding on the parties.

The applicant Surya Wires submitted before the High Court that the Empowered Committee of Ministry of Rural Development is an interested party and hence, in view of the judgment of the Supreme Court in Perkins Eastman Architects DPC & Anr. versus HSCC (India) Ltd. (2019), it could not act as an Arbitral Tribunal.

The applicant relied upon the judgment of the Gujarat High Court in Surya Wires Private Limited versus Gujarat Livelihood Promotion Company Limited (2022). It contended that in the case of Surya Wires Private Limited (2022), the arbitration clause contained in the agreement between the applicant and the Gujarat Livelihood Promotion Company Ltd. (GLPC Ltd.), provided for referring the disputes between the parties to the Board of Directors of GLPC Ltd., whose decision would be final. The applicant argued that the Gujarat High Court had held that the GLPC Ltd. or the Board of Directors could not act as Arbitrators in view of the judgment of the Supreme Court in Perkins Eastman Architects DPC & Anr. (2019). The Gujarat High Court had thus appointed an arbitrator.

Refuting the contentions of the applicant, the Court observed that the Empowered Committee of Ministry of Rural Development, is not a party in the MoU entered into between the applicant and the respondent-Rajasthan Skills and Livelihoods Development Corporation. The Court added that the Empowered Committee cannot be said to be an interested party covered under Section 12(5) of the A&C Act in terms of the judgment of the Supreme Court in Perkins Eastman Architects DPC & Anr. (2019).

The Court further noted that the Apex Court in HRD Corporation versus Gail (India) Limited (2017) had held that, as opposed to the grounds contained in the Seventh Schedule of the A&C Act, any challenge against an arbitrator on the grounds contained in the Fifth Schedule, which give rise to justifiable doubts regarding his independence or impartiality, can be gone into by the Court only after the Arbitral Tribunal has given an award.

"I am of the considered view that the judgment of Perkins Eastman Architects DPC & Anr. Versus HSCC (India) Ltd. (supra) would not apply to the Empowered Committee of Ministry of Rural Development, Government of India as it is not an interested party in the Agreement entered into between the applicant and the respondent. The applicant should therefore have referred the dispute to the Empowered Committee of Ministry of Rural Development, Government of India before filing this Arbitration Application under Section 11 of the Act of 1996.", the High Court ruled.

The Court thus, dismissed the application.

Case Title: Surya Wires Private Limited versus Rajasthan Skills and Livelihoods Development Corporation

Citation: 2022 LiveLaw (Raj) 234

Dated: 15.09.2022 (Rajasthan High Court, Jaipur Bench)

Counsel for the Applicant: Mr. Udit Purohit

Counsel for the Respondent: Mr. Rohit Kumar Garg

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