Bombay High Court: Arbitrator’s Appointment From A Narrow Panel Violates Sec 12(5) Of A&C Act

Bombay High Court: Arbitrator’s Appointment From A Narrow Panel Violates Sec 12(5) Of A&C Act

Cites the judgment of the Supreme Court in the Voestalpine Schienen case

The Bombay High Court has ruled that the appointment of the arbitrator from a panel of four arbitrators violated Section 12(5) of the Arbitration and Conciliation (A&C) Act. The practice restricted free choice and gave rise to suspicion of favoritism.

The bench comprising Justice Bharati Dangre held that independence and impartiality of arbitrators was a hallmark of arbitration and the rule against bias was one of the fundamental principles of natural justice. It applied to all quasi-judicial proceedings.

On 02.01.2020, the parties entered an agreement, wherein the petitioner was chosen as the contractor for the mechanized and manual cleaning and house-keeping of the respondent’s 13 railway stations.

A dispute arose between the entities on payments and the respondent invoked the arbitration clause seeking the arbitrator’s appointment. On the failure of the parties to mutually agree on the appointment, the petitioner approached the court under Section 11(6) of the A&C Act.

The petitioner submitted:

• The appointment procedure provided under the agreement is invalid, as it provides for appointment from a narrow panel of arbitrators.

• The respondent’s general manager cannot act as an appointing authority.

• The respondent is permitted to appoint two-thirds of the arbitral tribunal, and the nomination by the petitioner is subject to confirmation by the respondent.

• The judgment in the CORE has been referred to a larger bench after disagreement by two coordinate benches of the Supreme Court.

The respondent’s counter-submissions:

• The apex court upheld the appointment procedure in the CORE judgment, wherein the bench approved an identical appointment procedure.

• The top court in the Voestalpine Schienen case also held that there was no prohibition on the appointment of a retired government employee as arbitrator, as he would bring in technical expertise.

Justice Dangre observed that the clause provided for appointment of a three-member arbitral tribunal out of four names maintained by the respondent. The petitioner was to choose three names, and the respondent to appoint one person as the petitioner's nominee. The remaining two arbitrators, including the presiding arbitrator, was to be appointed only by the respondent.

The bench relied on the Supreme Court judgment in the Voestalpine case and stated that a panel unilaterally prepared by a party must be broad and diverse to avoid any possible conflict with Section 12(5). The power of the general manager ran contrary to the principles of impartiality and independence.

Thus, the court allowed the petition and appointed a sole independent arbitrator.