Important Judgment Reported on Impartiality and Independence of Arbitrators Today (18th May, 2019) Amaresh Patel LANDMARK JUDGMENT Sat, May 18, 2019, at ,04:11 PM Title of the Case – Impartiality and Independence of Arbitrators Name of the case – Bharat Broadband Network Limited V. United Telecoms Limited, C.A. No. 3972 of 2019 (@ SLP (Civil) No. 1550 of 2018) Date of Judgment – 16th May, 2019 Judges: Justice R.F. Nariman and Justice Vineet Saran Subject and sections involved – Section 12 (5) of the Arbitration and Conciliation Act, 1996 Issue: Whether section 12 (5) of the Arbitration and Conciliation Act, 1996 shall be re-interpreted? Whether High Court was right in rejecting Petition filed by BBNL seeking the appointment of substitute Arbitrator. Fact of the Case: Bharat Broadband Network Ltd. [“BBNL”], had floated a tender dated 05.08.2013 inviting bids for a turnkey project for supply, installation, commissioning, and maintenance of GPON equipment and solar power equipment. The respondent was the 1 Bar & Bench (barandbench.com) successful L1 bidder. The appellant issued an Advance Purchase Order [“APO”] dated 30.09.2014. Clause III.20.1 of the General (Commercial) Conditions of Contract [“GCC”] provides for arbitration. On 03.01.2017, United Telecoms Limited asked for appointment of Arbitrator for adjudication of dispute. On 17.01.2017 the Chairman and Managing Director of the appellant appointed Shri K.H. Khan as Sole Arbitrator. During the Arbitration Process, Supreme Court passed Judgment in TRF Limited v. Energo Engineering Projects Ltd., (2017) 8 SCC 377, holding that Managing Director cannot appoint an arbitrator as he is one of the parties to the Arbitration. In accordance judgment, BBNL prayed before the Sole Arbitrator that since he is de jure, he is unable to perform his function as arbitrator, and therefore he should withdraw from the proceedings to allow the parties to approach the High Court. On 20.10.2017, Shri Khan rejected the application after hearing both the sides, without giving any reason therefor. On 28.10.2017, BBNL filed a petition before High Court under section 14 and 15 of the Act to state that the arbitrator has become de jure incapable of acting as such and that a substitute arbitrator shall be appointed in his place. On 22.11.2017, the petition was rejected by Delhi High Court stating that The very person who appointed the arbitrator is estopped from raising a plea that such arbitrator cannot be appointed after participating in the proceedings. In any event, under the proviso to section 12 (5) of the Act, inasmuch as the appellant itself has appointed arbitrator, and the respondent has filed a statement of claim without any reservation, the same would amount to a waiver of the applicability of Section 12 (5) of the Act. The said judgment of Delhi High Court is challenged before the Supreme Court. Ratio of the case - Independence or Impartiality Section 12(1), as substituted by the Arbitration and Conciliation (Amendment) Act, 2015 [“Amendment Act, 2015”], makes it clear that when a person is approached in connection with his possible appointment as an arbitrator, it is his duty to disclose in writing any circumstances which are likely to give rise to justifiable doubts as to his independence or impartiality. The disclosure is to be made in the form specified in the Sixth Schedule, and the grounds stated in the Fifth Schedule are to serve as a guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. Once this is done, the appointment of the arbitrator may be challenged on the ground that justifiable doubts have arisen under sub-section (3) of Section 12 subject to the caveat entered by subsection (4) of Section 12. The challenge procedure is then set out in Section 13, together with the time limit laid down in Section 13(2). 15 Bar & Bench (barandbench.com) What is important to note is that the arbitral tribunal must first decide on the said challenge, and if it is not successful, the tribunal shall continue the proceedings and make an award. It is only post award that the party challenging the appointment of an arbitrator may make an application for setting aside such an award in accordance with Section 34 of the Act. De Jure Inability Of An Arbitrator Section 12(5), on the other hand, is a new provision which relates to the de jure inability of an arbitrator to act as such. Under this provision, any prior agreement to the contrary is wiped out by the nonobstante clause in Section 12(5) the moment any person whose relationship with the parties or the counsel or the subject matter of the dispute falls under the Seventh Schedule. The sub-section then declares that such person shall be “ineligible” to be appointed as arbitrator. The only way in which this ineligibility can be removed is by the proviso, which again is a special provision which states that parties may, subsequent to disputes having arisen between them, waive the applicability of Section 12(5) by an express agreement in writing. What is clear, therefore, is that where, under any agreement between the parties, a person falls within any of the categories set out in the Seventh Schedule, he is, as a matter of law, ineligible to be appointed as an arbitrator. The only way in which this ineligibility can be removed, again, in law, is that parties may after disputes have arisen between them, waive the applicability of this sub-section by an “express agreement in writing”. Obviously, the “express agreement in writing” has reference to a person who is interdicted by the Seventh Schedule, but who is stated by parties (after the disputes have arisen between them) to be a person in whom they have faith notwithstanding the fact that such person is interdicted by the Seventh Schedule. Interpretation Section 12(5) of the Act. This judgment cannot possibly apply as the present case is governed by the express language of the proviso to Section 12(5) of the Act. Similarly, the judgments relied upon by the learned Senior Advocate appearing on behalf of the respondent, namely, Vasu P. Shetty v. 25 Bar & Bench (barandbench.com) Hotel Vandana Palace, (2014) 5 SCC 660, and BSNL v. Motorola India (P) Ltd., (2009) 2 SCC 337 [“BSNL”], for the same reason, cannot be said to have any application to the express language of the proviso to Section 12(5). It may be noted that BSNL (supra) deals with Section 4 of the Act which, as has been stated hereinabove, has no application, and must be contrasted with the language of the proviso to Section 12(5).