ReSolution Issue 16, February 2018 | Page 27

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ReSolution | Feb 2018 26

...so long as there is no justifiable apprehension about his independence or impartiality, the appointment could not be rendered invalid...

Judgment

The Supreme Court, at the very outset, observed that the parties invoked arbitration on 29 July, 2015, the arbitrator was appointed on 19 August, 2015 and the parties appeared before the arbitrator on 7 October, 2015, well before 23 October 2015 i.e. the date on which the 2015 Amendment was deemed to have come into force. It was prima facie held that the statutory provisions that would therefore govern the present controversy are those that were in force before the 2015 Amendment came into effect. The Supreme Court further relied on the judgment in the matter of Indian Oil Corporation Ltd. and Others v. Raja Transport Private Ltd.[2] while holding that the fact that the named arbitrator happens to be an employee of one of the parties to the arbitration agreement has not by itself, before the 2015 Amendment came into force, rendered such appointment invalid and unenforceable. It was observed that the sole arbitrator undoubtedly was an employee of Aravali Power but so long as there is no justifiable apprehension about his independence or impartiality, the appointment could not be rendered invalid and unenforceable.

The Supreme Court while discussing the judgment passed in the matter of Northern Railway Administration, Ministry of Railway, New Delhi v. Patel Engineering Company Ltd.[3], along with various other judgments, observed and held that referring the disputes to the named arbitrator, by way of an arbitration agreement, shall be the rule. The Chief Justice or his designate will have to merely reiterate the arbitration agreement by referring the parties to the named arbitrator or named arbitral tribunal. Ignoring the named arbitrator/arbitral tribunal and nominating an independent arbitrator shall be the exception to the rule, to be resorted for valid reasons.

The Supreme Court also discussed the judgment passed in the matter of Voestalpine Schienen GMBH vs. Delhi Metro Rail Corporation Limited[4] and distinguished the same by observing that this was the only decision in which the invocation of arbitration was after the 2015 Amendment but the same would not apply to the facts of the present case.

In light of the rival contentions, the Supreme Court held as under:

• Except the decision of this Court in Voestalpine Schienen GMBH (supra) referred to above, all other decisions arose out of matters where invocation of arbitration was before the 2015 Amendment came into force. Voestalpine Schienen GMBH (supra) was a case where the invocation was on 14 June, 2016 i.e. after the 2015 Amendment and the observations in para 18 clearly show that since “the arbitration clause finds foul with the amended provisions”, the Court was empowered to appoint such arbitrator(s) as may be permissible.

• The ineligibility of the arbitrator was found in the context of amended Section 12 read with Seventh Schedule (which was brought in by the 2015 Amendment) in a matter where invocation for arbitration was after the 2015 Amendment had come into force. It is thus clear that in cases prior to the 2015 Amendment, the law laid down in Northern Railway Administration (Supra), as followed in all the aforesaid cases, must be applied, in that, the terms of the agreement ought to be adhered to and/or given effect to as closely as possible.

• The jurisdiction of the Court under Section 11 of 1996 Act would arise only if the conditions specified in clauses (a), (b) and (c) are satisfied. The cases referred to above show that once the conditions for exercise of jurisdiction under Section 11(6) were satisfied, in the exercise of consequential power under Section 11(8), the Court had on certain occasions gone beyond the scope of the concerned arbitration clauses and appointed independent arbitrators. What is clear is, for exercise of such power under Section 11(8), the case must first be made out for exercise of jurisdiction under Section 11(6) of the 1996 Act.

In view of the above, the Supreme Court allowed the appeal filed by Aravali Power and held that:

•Observations of the High Court show that the exercise was undertaken by the High Court, “in order to make neutrality or to avoid doubt in the mind of the petitioner” and ensure that justice must not only be done and must also be seen to be done.

•In effect, the High Court applied principles of neutrality and impartiality which have been expanded by way of the 2015 Amendment, even when no cause of action for exercise of power under Section 11(6) had arisen.

•The procedure as laid down in Section 12 of the 1996 Act prior to the 2015 Amendment mandated disclosure of circumstances likely to give rise to justifiable doubts as to independence and impartiality of the arbitrator. It is not the case of Era Infra that the provisions of Section 12 of the 1996 Act in un-amended form stood violated on any count. The provision contemplated clear and precise procedure under which the arbitrator could be challenged and the objections in that behalf under Section 13 of the 1996 Act could be raised within prescribed time and in accordance with the procedure detailed therein. The record shows that no such challenge was raised within the time and in terms of the procedure prescribed.

•As a matter of fact, Era Infra had participated in the arbitration and by its communication dated 4 December 2015, had sought extension of time to file its statement of claim.

•Accordingly, it was held that the Delhi High Court was clearly in error in exercising jurisdiction in the present case and it ought not to have interfered with the process and progress of arbitration. Therefore, the challenge raised by Aravali Power was accepted and the contentions raised by Era Infra were rejected.