Section 12(5) Of A&C Act Applies To Proceedings Commenced Before Or After The 2015 Amendment: Delhi High Court

The bench of Justice Anup Jairam Bhambhani held that in view of Section 12, independence and impartiality of arbitrator is a continuing requirement and any ineligible person acting as the arbitrator cannot continue merely because the arbitral proceedings began before the Section 12(5) came into force.

The Court held that if an arbitrator is appointed after section 12(5) has come into force, the arbitrator would be ineligible if he does not pass muster on the anvil of the Seventh Schedule read in context of section 12(5) of the A&C Act. This position would obtain regardless of whether the arbitral proceedings themselves commenced prior to, or post, coming into force of the Amendment Act-2015, provided the arbitrator is being, or has been, appointed after the amendment took effect.

Facts

The parties entered into an agreement dated 01.02.2011. Arbitration clause provided for appointment of respondent's GM as the sole arbitrator. Certain disputes arose between the parties, hence, the petitioner issued the arbitration notice dated 27.01.2014. Accordingly, the parties were referred to arbitration before respondent's GM. The arbitrator vide order dated 22.06.2016 terminated the arbitral proceedings, under Section 25, due to the failure of the petitioner to file its statement of claim within the stipulated time.

Thereafter, the respondent filed an application for the recall of the order dated 22.06.2016. Therefore, the respondent appointed the 2^nd arbitrator who also happened to be its Regional Executive Director and head of the project. Aggrieved with the appointment of the 2^nd arbitrator, the petitioner issued its objection on the ground that his appointment was contrary to Section 12(5) of the Act. However, the arbitrator dismissed the recall application.

Aggrieved thereby, the petitioner approached the Court for the termination of the mandate of the arbitration under Section 14 of the A&C Act.

Contention of the Parties

The petitioner sought the termination of the mandate of the arbitrator on the following grounds:

• The appointment of the arbitrator was invalid in view of Section 12(5) of the A&C Act.
• The appointment was made after the 2015 Amendment came into force, therefore, the rigours of Section 12(5) would apply to his appointment.
• There is a difference between the termination of proceedings under Section 25 and 32(2) of the Act as in the former the option of recall and challenge to appointment is available while the latter renders the arbitral tribunal functus officio and the only recourse would be under Section 34 of the Act.

The respondent objected to the maintainability of the petition on the following grounds:

• The arbitrator has rejected the petitioner's application for recall of its order dated 22.06.2016 passed under Section 25 of the Act, therefore, the by the rejection of the recall application is an 'award' and the arbitrator has become functus officio and any challenge would lie under Section 34 of the Act.
• Section 12(5) would have no applicability in the present matter as the arbitral proceedings commenced much before the section came into force and Section 26 of 2015 Amendment Act gave it a prospective effect, therefore, the petition is not maintainable.
• The arbitration clause between the parties stipulated that the arbitration would only be before the GM of the respondent otherwise there would be no arbitration at all, therefore, the appointment must be made in accordance with the agreement only.

Analysis by the Court

Firstly, the Court dealt with the objection regarding the non-maintainability of the petition on the ground that once the application for recall of order of termination was dismissed, the arbitrator became functus officio and its order was an 'award' which could only be challenged under Section 34 of the Act.

The Court held that the order by which the 2^nd arbitrator dismissed the application for recall of termination order dated 22.06.2016 would only be valid if his appointment is valid in law, therefore, the court held that the outcome of this objection is dependant on the validity of his appointment.

Next, the Court decided the issue whether Section 12(5) would apply to an arbitration proceeding commenced before the 2015 amendment act but the appointment was made on a date on which Section 12(5) was in force.

The Court relied on the judgment of the Supreme Court in Ellora Paper Mills v. State of Madhya Pradesh, 2022 to hold that Section 12(5) would apply regardless whether the notice of arbitration was given before or after the 2015 amendment came into force provided that the appointment was made on a date Section 12(5) was in force.

The Court held that in view of Section 12, independence and impartiality of arbitrator is a continuing requirement and any ineligible person acting as the arbitrator cannot continue merely because the arbitral proceedings began before the Section 12(5) came into force.

The Court held that if an arbitrator is appointed after section 12(5) has come into force, the arbitrator would be ineligible if he does not pass muster on the anvil of the Seventh Schedule read in context of section 12(5) of the A&C Act. This position would obtain regardless of whether the arbitral proceedings themselves commenced prior to, or post, coming into force of the Amendment Act-2015, provided the arbitrator is being, or has been, appointed after the amendment took effect.

The Court held that although the 1^st arbitrator was appointed before the amendment came into force, however, he terminated the proceedings under Section 25 of the Act and on the request of the petitioner, respondent appointed the 2^nd arbitrator to decide petitioner's recall application.

The Court held that the appointment of the 2^nd arbitrator was doubtlessly a fresh exercise for appointment of an arbitrator and Section 12(5) was in force at the time of the 2^nd appointment and the arbitrator being an interested party, his appointment falls under the grounds provided in 7^th Schedule r/w Section 12(5) of the Act.

The Court held that since the 2^nd arbitrator was de facto and de jure ineligible, any order passed by him would also be invalid. The Court also held that Section 14 not just allow the Court to terminated the mandate but also appoint the substitute arbitrator.

Accordingly, the Court terminated the mandate of the 2^nd arbitrator and appointed a substitute arbitrator.

Case Title: Ram Kripal Singh Construction Pvt. Ltd. v. NTPC

Citation: 2022 LiveLaw (Del) 1090

Date: 09.11.2022

Counsel for the Petitioner: Mr. Amit Pawan, Mr. Hassan Zobair Waris, Mr. Aakarsh & Ms. Shivangi, Advocates

Counsel for the Respondent: Mr. R. Sudhinder, Advocate with Mr. Nikhil Kumar Singh, Advocate.

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