April 17, 2019

Another Arbitrator cannot be appointed by person Ineligible To Be Arbitrator Under Sec 12(5) Of Arbitration Act : SC


When an ineligible person appoints an Arbitrator, such an appointment is itself void ab initio, the Supreme Court has held.

The decision in TRF Ltd. v Energy Engineering Projects Ltd (2017) 8 SCC 377 (TRF Ltd)., which held that an ineligible person cannot appoint an arbitrator was followed by the bench of Justices R F Nariman and Vineet Saran

The instant case involving the dispute between Bharat Broadband Network Ltd (BBNL) and United Telecoms Ltd (UTL) was referred to arbitration by the CMD of BBNL.

The arbitration clause was invoked by UTL on January 3, 2017. The appointment of an arbitrator was sought. BBNL CMD appointed one K.H. Khan as arbitrator.

Thereafter, on July 3, 2017, the SC ruled in the TRF Ltd. case that an ineligible arbitrator cannot appoint another arbitrator.

BBNL cited this and sought to withdraw Khan from the proceedings.

Khan’s rejection of the request for withdrawal was challenged under Section 14 & 15 of the Act by BBNL before Delhi High Court.

The BBNL appeal was allowed and Justice Nariman authored the judgment stating, "… Where such person becomes "ineligible" to be appointed as an arbitrator, there is no question of challenge to such arbitrator, before such arbitrator. In such a case, i.e., a case which falls under Section 12(5), Section 14(1)(a) of the Act gets attracted inasmuch as the arbitrator becomes, as a matter of law (i.e., de jure), unable to perform his functions under Section 12(5), being ineligible to be appointed as an arbitrator.

This being so, his mandate automatically terminates, and he shall then be substituted by another arbitrator under Section 14(1) itself. It is only if a controversy occurs concerning whether he has become de jure unable to perform his functions as such, that a party has to apply to the Court to decide on the termination of the mandate, unless otherwise agreed by the parties.

Thus, in all Section 12(5) cases, there is no challenge procedure to be availed of. If an arbitrator continues as such, being de jure unable to perform his functions, as he falls within any of the categories mentioned in Section 12(5), read with the Seventh Schedule, a party may apply to the Court, which will then decide on whether his mandate has terminated."

"Whether such ineligible person could himself appoint another arbitrator was only made clear by this Court's judgment in TRF Ltd. (supra) on 03.07.2017, this Court holding that an appointment made by an ineligible person is itself void ab initio. Thus, it was only on 03.07.2017, that it became clear beyond doubt that the appointment of Shri Khan would be void ab initio.

Since such appointment goes to "eligibility", i.e., to the root of the matter, it is obvious that Shri Khan's appointment would be void. There is no doubt in this case that disputes arose only after the introduction of Section 12(5) into the statute book, and Shri Khan was appointed long after 23.10.2015.”

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