Supreme Court: Sec.12(5) of Arbitration Act is mandatory & non-repealable provision

Supreme Court: Sec.12(5) of Arbitration Act is mandatory & non-repealable provision

The Supreme Court of India (SC) has ruled that Section 12(5) read with the VII (7TH) Schedule of the Arbitration and Conciliation Act, 1996 (Act) is a mandatory provision that cannot be repealed

The Top Court in the case of Haryana Space Application Centre (HARSAC) and Another (Appellants) v. M/s Pan India Consultants Pvt. Ltd. (Respondents) clarified that the appointment of Sole Arbitrator is subject to the declarations being made under Section 12 of the Act regarding independence and impartiality, and the ability to devote sufficient time to complete the arbitration within the period of six months.

The appointment of the Principal Secretary to the Govt. of Haryana has been held ineligible as an arbitrator by the SC since he would have a controlling influence on the appellant's company being a Nodal Agency of the State.

The factual matrix of the case is that the Appellant is the Nodal Agency for Geographic Information System (GIS) Application and Remote Sensing for the Govt. of Haryana. It invited 'Request for Proposal' in September 2010 from qualified vendors for the modernization of Land Record (including digitalization of cadastral Maps, integration with records, and management of old revenue documents).

On 28 February 2011, the appellant awarded the contract to the respondent and three other vendors for works specified in the allotment letter. A Service Level Agreements were executed between the parties.

The appellants alleged that the respondent failed to complete the work assigned within the prescribed timeline i.e. 31 December 2011, and was delaying the entire project. Even after the grant of extensions, the respondent failed to complete the work. Hence, the appellant invoked the Bank Guarantee on 18 March 2014.

The respondent filed a civil suit in the High Court of Delhi (HC) challenging the action of the appellants. The HC disposed of the suit, directing the respondent to keep the bank guarantees alive. It further directed the appellants not to encash it until the dispute resolve amicably or by an arbitral tribunal constituted by the parties.

The appellant invoked the arbitration clause in the Service Level Agreement, and they appointed the Haryana Govt. Principal Secretary, Anurag Rastogi (Arbitrator) as their nominee-arbitrator. Justice Rajive Bhalla (retd.) was appointed by the respondents as their nominee arbitrator on 14 September 2016 and the arbitral tribunal was constituted.

The respondent filed an application for the appointment of the presiding arbitrator. On 22 May 2017, the request for appointing the third arbitrator was declined and the right to nominate the third arbitrator in case of disagreement between the two arbitrators was reserved by the Tribunal.

On 3 August 2018, the Tribunal reserved the matter for passing the Award. The respondent filed an application under Section 29 A (4) of the Act, before the Additional District Judge (ADJ), Chandigarh, praying that the period for passing the arbitral award be extended.

The application was opposed by the appellant and however on 8 November 2019, the ADJ extended the pronouncement of the award by the Tribunal for three months.

The appellant filed a Civil Revision Application before the Punjab & Haryana High Court (HC) for setting aside the ADJ's order. However, the tribunal failed to pronounce the Award even within this extended period, and on 7 January 2019, a letter terminating the mandate of the Tribunal was sent. The HC, due to pandemic granted four months' extension to the Tribunal and the appellants filed an appeal before the SC against the order of the HC.

The SC bench of Justices L. Nageswara Rao, Indu Malhotra, and Ajay Rastogi observed that four years have elapsed since the constitution of the Tribunal on 14 September 2016 and the Award has not been pronounced yet, although the arbitrators were ready to pass the award.

The SC stated that in its view, the appointment of the appellants' nominee arbitrator would be invalid under Section 12(5) of the 1996 Act r.w. the 7th Schedule as amended by the 2015 Amendment Act. It provides that although any prior agreement to the contrary exits, whose relationship with the parties, or counsel, falls within any of the categories specified in the 7thSchedule, shall be ineligible to be appointed as an arbitrator.

The Top Court further stated that the counsels for both the parties, during the proceedings have agreed to substitute the existing Tribunal by the appointment of a Sole Arbitrator to complete the arbitral proceedings.

The SC while exercising its powers under Section 29A(6) of the Act (as amended), appointed Justice Kurian Joseph, as the Sole arbitrator for conducting further proceedings and to pass the award within six months from the date of receipt of this Order. The Arbitrator may direct the parties to address final arguments and take him through the entire record of the case.