I. The context:
This judgment (“CORE”) is a recent addition to the list of cases on the appointment of an arbitrator.
Several provisions relating to independence and impartiality were introduced in the Arbitration and Conciliation Act, 1996 (“ACA”) in 2015. The Seventh Schedule provides for “arbitrator’s relationship with the parties or counsel.” Under Section 12 (5), ACA, a person whose relationship with the parties or counsel falls under the Seventh Schedule is ineligible to act as arbitrator. But the parties, subsequent to the dispute having arisen, may waive the applicability of Section 12 (5) by an express agreement in writing.
In TRF Limited v. Energo Engineering Limited, (2017) 8 SCC 377 (“TRF”), a 2-judge bench of the Supreme Court held that a person ineligible to be an arbitrator (like officer or employee of one party) could not be the person empowered to appoint another. Another 2-judge bench in Perkins Eastman Architect DPC v. HSSC (India) Ltd., 2019 SCC OnLine SC 1517 (“Perkins”) extending the TRF principle held that a party (or any official of the party) or anyone having an interest in the dispute could not unilaterally appoint a sole arbitrator.
II. The agreement in CORE:
This case involved the Indian Railways’ Standard General Conditions of Contract (“GCC”),   The petitioner, CORE, is an organisation set up under the Ministry of Railways to carry out railway electrification over the entire network of Indian Railways. Show More revised after the 2015 amendments, which provides the following appointment mechanism of the arbitral tribunal: –
When disputes arose, the respondent JV (“JV”) was sent by the petitioner CORE a list of names of serving officers (under the clause which applied if Section 12(5) was waived). The JV did not make the waiver. Then, CORE sent a list of names of retired officers (under the clause which applied in the case of non-waiver). The JV did not make its selection from this list either and applied to the court under Section 11 of the ACA for an appointment of a sole arbitrator. The High Court appointed a retired judge of that court.   In its short order the High Court noted that the list was not made available at an earlier point in time, and in any case since no agreement could be reached, the court’s jurisdiction had clearly arisen. It also said that court can appoint an arbitrator de hors parties’ contract. From the facts set out in the Supreme Court’s judgment, it appears the lists were sent before the petition was filed. Show More CORE approached the Supreme Court.
The question was if appointment of an arbitrator independent of the GCC provisions was right? In the course, other questions arose around the neutrality provisions and applicability of previous judgments of the Supreme Court.
A. “Appointment of an independent arbitrator without reference to the Clauses of the GCC—whether correct?” The court said NO.
The court first noted the parties’ arguments.
Then it referred to the clauses of the General Conditions of Contract (“GCC”) and concluded as follows (in one paragraph, broken into two sentences below for convenience): –
Secondly, the court referred to the fact that the JV itself, in its application under Section 11(6) ACA, prayed for appointment of a sole arbitrator in terms of the clauses of the tender and Clause 64 of the GCC and had identified a name (which CORE did not agree to since he was not empanelled).  The court does not state any legal principle applicable to this fact. It appears to be that of acquiescence. Show More
Thirdly, the court referred to and applied its earlier 2-judge decision in Union of India v. Parmar Construction Company, 2019 SCC OnLine SC 442 (“Parmar”).  AM Khanwilkar and Ajay Rastogi JJ, decided on 29 March 2019 Show More In Parmar, the Supreme Court set aside the appointment of an independent arbitrator and directed the General Manager of Railways to appoint the tribunal in terms of the agreement. The court in CORE also referred to Union of India v. Pradeep Vinod Construction Company, 2019 SCC Online SC 1467 (a 3-judge bench presided by Banumathi J.) (“Pradeep Vinod”), where relying on Parmar, it was held that the appointment should be in terms of the agreement.  See our update on Pradeep Vinod here. Both in Parmar as well as Pradeep Vinod, the court had found that the pre-2015 provisions applied. Show More
B. Are retired Railways officers statutorily ineligible? No, they are not.
The court held: –
C. Being ineligible by operation of law to be appointed as arbitrator, could the General Manager nominate another? YES
The JV argued, relying on TRF and Perkins that the General Manager was ineligible to nominate any other person to be an arbitrator; “that which cannot be done directly, may not be done indirectly”.
The court rejected the argument and held as follows: –
D. CORE did not forfeit the right to appoint
The JV had argued that the request for appointment was made on 27 July 2018 but no steps were taken within thirty days–CORE, thus, forfeiting the right.
Rejecting the argument, the court first noted Punj Lloyd Ltd. v. Petronet MHB Ltd., (2006) 2 SCC 638 (“Punj Lloyd”) (and Union of India v. Bharat Battery Manufacturing Co. (P) Ltd., (2007) 7 SCC 684 which followed Punj Lloyd Ltd.) where it was held that if the opposite party has not made an appointment within 30 days of demand, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former files an application under section 11 ACA seeking appointment of an arbitrator. Only then the right of the opposite party ceases.   The court cited Punj Lloyd, and reproduced the relevant passages, but when summarizing its holding, expressed it in the following words: “if the opposite party has not made any application for appointment of the arbitrator within thirty days of demand, the right to make appointment is not forfeited but continues; but the appointment has to be made before the former files application under Section 11 of the Act seeking appointment of an arbitrator.” Show More
Then it noted the following dates:–
The court then concluded, when without responding to the letter (communicating of the panel of names), the JV filed the petition, it cannot contend that CORE’s right extinguished.
Categories: 2015 Amendments | Accrual of Right to Apply | Arbitral Tribunal of Serving or Retired Officers | Arbitration and Conciliation Amendment Act 2015 | Bias | CORE | Delay in Nominating Arbitrator | Fifth Schedule | Grounds for Challenge | Impartiality of Arbitrator | Independence and Impartiality of Arbitrator | Independence of Arbitrator | Neutrality of Arbitrator | Perkins | Right to Appoint Arbitrator | Right to Nominate Arbitrator | Section 11 ACA | Section 12 (5) ACA | Section 12 ACA | Seventh Schedule | Sole Arbitrator | TRF | Voestalpine