Ellora Paper Mills Limited Vs. State of Madhya Pradesh

Madhya Pradesh High Court (Single Judge)

AC, 100 of 2019, Judgment Date: Aug 27, 2021

Law laid down:-

Application preferred u/s 14 read with Section 11 and 15 of the Arbitration and Conciliation Act, 1996 seeking termination of the mandate of originally constituted Arbitral Tribunal and appointment of a new Arbitrator.

The question requires answer is whether sub-section (5) of Section 12 of the Act of 1996 would apply to arbitration proceeding which had already commenced prior to introduction of the amendment by Act 3 of 2016 with effect from 23.10.2015. In other words, whether sub-section (5) of Section 12 read with Seventh Schedule appended to the Act of 1996 can be relied by a party which had already appeared before the Arbitral Tribunal, as in this case, the petitioner, who had already appeared before Arbitral Tribunal and participated in the proceedings, can now seek termination of the mandate of the Arbitral Tribunal?

Mere fact that the arbitrator is an employee is not ipso facto a ground to raise any presumption of bias or partiality so long as there is no justifiable apprehension about arbitrator’s independence or impartiality. 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 Amendment Act came into force, rendered such appointment invalid and unenforceable. (Relied: Aravali Power Company Pvt. Ltd. Vs. Era Infra Engineering Ltd. (2017) 15 SCC 32 and Indian Oil Corporation Ltd. & others Vs. Raja Transport Pvt. Ltd. (2009) 8 SCC 520).

Upon conjoint reading of Section 21 of the Principal Act and Section 26 of the Amendment Act, where the request to refer the dispute to arbitration has been sent and received by the other side before the 2015 Amendment Act came into force and in other words where the arbitration commenced prior to 23.10.2015, the provision of the 2015 Amendment Act shall not apply to such of the arbitral proceedings which have commenced in terms of the provisions of Section 21 of the Principal Act unless the parties otherwise agree. The Court should first appoint the arbitrators in the manner provided for in the arbitration agreement but where the independence and impartiality of the arbitrator(s) appointed/nominated in terms of the arbitration agreement is in doubt, or where the Arbitral Tribunal appointed in the manner provided in the arbitration agreement has not functioned and it becomes necessary to make fresh appointment, the Chief Justice or his designate, in the given circumstances, after assigning cogent reasons in appropriate cases, may resort to an alternative arrangement to give effect to the appointment of independent arbitrator under Section 11(6) of the Act of 1996. (Relied: Union of India Vs. Parmar Construction Company (2019) 15 SCC 682)

It was permissible to appoint a person by designation. The arbitration agreements involving government contracts providing that an employee of department or a higher official unconnected with the work or contract will be arbitrator are neither void nor unreasonable. Once appointment of arbitrator is made at the instance of Government, arbitration agreement could not have been invoked for second time. (Relied: S.P.Singla Constructions Pvt. Ltd. Vs. State of Himachal Pradesh and another (2019) 2 SCC 488

The petitioner has not been able to produce any material to show any bias or partiality on the part of any of members of the Arbitral Tribunal and therefore failed to substantiate that one or more of them have not acted impartially or independently.

In the present case, when on invocation of arbitration clause by the petitioner, the Arbitral Tribunal consisting of the officers named by designation had already been appointed and has been acted upon, it cannot be said that there ever remained any vacuum in the Arbitral Tribunal because mere change of incumbents by reason of transfer or retirement would not make any difference as they were made members of the Arbitral Tribunal by designation and not by name. Therefore, there does not arise any necessity to appoint another Arbitral Tribunal.

Ellora Paper Mills Limited Vs. State of Madhya Pradesh