Can Ineligible Person Appoint Arbitrator? Supreme Court Defers Hearing As Centre Is Considering Reforms To Arbitration & Conciliation Act

A Constitution Bench of the Supreme Court on Wednesday decided to defer for two months the hearing of a reference which raises the issue whether a person, who is ineligible to be appointed as an arbitrator, can appoint an arbitrator. The matter was listed before a bench comprising Chief Justice of India DY Chandrachud, Justice Hrishikesh Roy, Justice PS Narasimha, Justice Pankaj Mithal, and Justice Manoj Misra. 

At the outset, the Attorney General for India R Venkataramani, appearing for the Union Government, seeking for deferment in the matter, submitted–

"The matter could be deferred for a while till the committee gives its report. It is a consultative process."

Senior Advocate Fali Sam Nariman echoed a similar sentiment and said–

"That would be preferable because the reference by government is really on a new law to be enacted. That seems to be the memorandum of the government. So we do not know if the new law will be enacted or not". 

They were referring to the sixteen-member expert committee which has been constituted by the Ministry of Law and Justice on June 14, 2023. The committee, headed by Dr. T.K. Vishwanathan, Former Secretary of the Department of Legal Affairs, is for examining the working of arbitration law in India and recommending reforms in the Arbitration and Conciliation Act, 1996. The step was taken to limit the requirement for parties to seek judicial intervention by approaching courts. 

Upon the requests of deferment, CJI DY Chandrachud asked–

"We can defer the hearing. But what is the timeline?"

The AG responded–

"The committee should not take more than two months and I will also try to expedite the process. We will give a report back to the court as soon as deliberations are done."

The Supreme Court then agreed to defer the matter by two months. CJI DY Chandrachud, while dictating the order, said–

"We are informed that Union Govt has constituted an expert committee with a broad remit to consider the provisions of the Arbitration and Conciliation Act, 1996. The Attorney General submits that the issues which have been raised before constitution bench will also come within the remit of the committee. After report of the committee, the government will take a considered view on whether the modification of legislation is warranted. Mr Fali S Nariman has also joined in and made the same submission as has the other party. Hence, presently we direct that the two references before the Constitution bench be deferred by a period of two months. The court shall be apprised on the next date of the progress which has been made following the constitution of the committee. List on September 13, 2023."

The references arise in the cases Central Organisation for Railway Electrification v. M/s ECI SPIC SMO MCML (JV) A Joint Venture Company and JSW Steel Limited v. South Western Railway & Anr. The issue involved in the matter is whether a person, who is ineligible to be appointed as an arbitrator, can appoint an arbitrator.

In 2017, in the case of TRF Ltd. v Energo Engineering Projects Ltd, the Supreme Court had first held that a person ineligible to be an arbitrator cannot nominate a person to be an arbitrator. A similar conclusion was reached by the Apex Court in Perkins Eastman Architects DPC v HSCC (India) Ltd in 2020. However, in the case of Central Organisation For Railway Electrification v ECL-SPIC-SMO-MCML (JV), (2020) the Supreme Court permitted the appointment by an ineligible person as arbitrator on grounds that the facts of Energo Engineering and Perkins Eastmen did not apply to the case at hand. This judgement was relied upon by the Karnataka High Court. However, the same was appealed against before the Apex Court.

In 2021, a 3-judge bench led by Justice Nariman doubted the view in Central Organisation for Railway Electrification and referred the issue to a larger bench  in the case Union of India vs Tantia Constructions.

Later, a 3-judge bench led by the then CJI UU Lalit also referred the issue to a larger bench in  JSW Steel Limited v. South Western Railway & Anr.

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