Navin Chawla, J
Rev. Pet. 267/2018
1. This application has been filed by the petitioner seeking review of the order dated 12.03.2018 passed by this Court partially allowing the challenge of
the petitioner to the Arbitral Award dated 05.07.2017 passed by the Sole Arbitrator adjudicating the disputes that have arisen between the parties in
relation to the Contract Agreement No.DGMAP/PHASE-II/PKG-19/1(B)/19 of 2010-11: Construction of dwelling units including allied services for
ORs at Hasting Road, Dakshineshwar RRC (Fort William), OD Line & Rasponja, Kolkata.
2. The limited ground for seeking review of the order is that this Court by its Judgment dated 04.05.2018 passed in OMP(T)(COMM) 9/2018, Omaxe
Infrastructure and Construction Ltd.v. Union of India & Anr. Has held that where the Arbitrator is appointed after coming into force of the
Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as ‘Amending Act’) and is ineligible in terms of the Seventh
Schedule of the Act, such Arbitrator cannot proceed with the arbitration proceedings.
3. It is submitted by the counsel for the petitioner that in the present case the Arbitrator had been appointed on 27.05.2016, that is, after the coming
into force of the Amending Act and being an employee of the respondent, was ineligible to be appointed as an Arbitrator under Section 12(5) read
with Entry 1 of the Seventh Schedule to the Act. The petitioner had also challenged the appointment of the Arbitrator by raising objections thereto,
which the Arbitrator rejected in the Impugned Award by holding that as the appointment was in terms of the Arbitration Agreement between the
parties whereunder the serving officer had to be appointed as an Arbitrator, there was no merit in the objections raised by the petitioner.
4. Counsel for the respondent submits that in the present case, the arbitration had been invoked by notice dated 13.10.2014. Infact, an Arbitrator had
also been appointed on 24.10.2014 and arbitration proceedings commenced before him. The arbitration and the appointment being prior to the coming
into force of the Amending Act, in terms of Section 26 of the Amending Act, the same are to be governed by the Act prior to its amendment. Relying
upon the Judgment of the Supreme Court in Aravali Power Company v. Era Infra Engineering Ltd., (2017) 15 SCC 3,2 he contends that as the
invocation happened and arbitration proceedings commenced prior to the coming into force of the Amending Act, paragraph 22.1.1 of the said
Judgment would apply and the mere fact that the Arbitrator is a serving employee of the respondent would not put a plug on his appointment or be
used as a ground to challenge the Award. He further submits that the Judgment of this Court in Omaxe Infrastructure and Construction Ltd.(supra)
would not apply to the facts of the present case as in the present case, unlike in Omaxe Infrastructure and Construction Ltd.(supra), the original
Arbitrator had been appointed prior to the coming into force of the Amending Act.
5. I have considered the submissions made by the counsels for the parties. Admittedly, though first Arbitrator was appointed on 24.10.2014, the
arbitration proceedings did not culminate into an Award due to resignation of the first Arbitrator. The present Arbitrator was appointed on 27.05.2016,
that is, after coming into force of the Amending Act.
6. In Omaxe Infrastructure and Construction Ltd.(supra), this Court has considered the effect of the appointment of an Arbitrator after coming into
force of the Amending Act and has held as under:
“15. Even otherwise, as the Substitute Arbitrator has been appointed by the respondent after the coming into force of the Amended Act, in my
opinion, the provisions of the Amended Act shall be relevant for considering the validity of such appointment. Section 12 of the Act as amended reads
as under:
“12. Grounds for challenge.â€[(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in
writing any circumstances,--
(a) such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-
matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or
impartiality; and
(b) which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a
period of twelve months.
Explanation 1.-- The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as
to the independence or impartiality of an arbitrator.
Explanation 2.-- The disclosure shall be made by such person in the form specified in the Sixth Schedule.]
(2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any
circumstances referred to in sub-section (1) unless they have already been informed of them by him.
(3) An arbitrator may be challenged only if â€
(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or
(b) he does not possess the qualifications agreed to by the parties.
(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware
after the appointment has been made.
[(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the
dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator:
Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in
writing.]
16. A reading of the above section would show that where a person is approached in connection with his possible appointment as an Arbitrator, he has
to disclose in writing any circumstances which are likely to give rise to justifiable doubts as to his independence or impartiality. Section 12(5) of the
Act explicitly states that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties falls under any of the
categories specified in the Seventh Schedule, shall be ineligible to be appointed as an Arbitrator.
Therefore, the eligibility of the Substitute Arbitrator, namely, Sh.R.P.Singhal, to be appointed as an Arbitrator has to be judged as on the day he is
approached in connection with his possible appointment. If Mr.Singhal is ineligible for being appointed on the date when he is approached, he cannot
be appointed, whether under the Act as applicable prior to the amendment or thereafter.
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21. Keeping the above object in mind, it cannot be accepted that though the Arbitrator is being appointed after coming into force of the Amended Act,
the circumstances giving rise to the justifiable doubts as to his independence or impartiality will not be judged by the parameters set out in the
Amended Act. xxxxx
24. As noted above, Section 12 of the Act would be relevant at a stage when a person is approached in connection with his possible appointment as an
Arbitrator. Further, even in the Un-amended Act, an Arbitrator could be challenged where circumstances exist that give rise to justifiable doubts as to
his independence or impartiality. The amendment merely incorporates the provisions of the Red and Orange lists of the IBA Guidelines on Conflicts of
Interest in International Arbitration, which would act as a guide on whether circumstances exist which give rise to such justifiable doubts. Section
12(5) read with the Seventh Schedule of the Act, as explained by the Supreme Court in HRD Corporation (Marcus Oil & Chemical Division) v. Gail
(India) Ltd. (Formerly Gas Authority of India Ltd.) 2017 SCC OnLine SC 1024, covers situations which are more serious and are non-waivable. In Re
School Board Election for the Parish of Pulborough. Bourke & Ors. v. Nutt (1894) 1 QB 725, Lord Esher has explained that a statute may have been
enacted in the present tense and when the present tense is used, it is used not in relation to time, but as the present tense of logic. In such cases, time
to be looked at is not when the disqualification was suffered, whether before or after the passing of the Act, but the time at which it has to be
determined whether the disqualification has been suffered. The relevant extracts from the said opinion are reproduced hereinunder:
“………. So that in this very statute there are enactments in the present tense, and Cotton, L.J., pointed out that the language used was applicable
to the state of things existing at the time when the petition is presented. Bowen, L.J., in the same case, said of the Act: “I think it is framed on the
idea that a bankruptcy code is being constructed, and when the present tense is used, it is used, not in relation to time, but as the present tense of logic.
That is, as I understand, that the time to be looked at is not that at which the act of bankruptcy was committed, whether before or after the passing of
the Act, but the time at which it has to be determined whether an act of bankruptcy has been committed. The judgment of Fry, L.J., is to the same
effect, and the case seems to me to show that when the present tense is used in this statute the time to be considered is the time at which the Court
has to act, and not the time at which the condition of things on which it has to act came into existence.
Applying this principle to the present case, the important time is that at which it has to be considered whether the person is disqualified from being
elected to or exercising any office. If that is the true construction of the Act it is not retrospective, but prospective, for it relates to a time after the
passing of the Act. Therefore, on the authority of this Court, and on the ordinary rules of construction, it seems to me that we cannot say this section
is retrospective; and even if it could be said that it is retrospective, its enactments are solely for the public benefit, and the rule that restricts the
operation of a penal retrospective statute does not apply, because this statue is not penal.
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27. In the present case, therefore, not only the language used in Section 12 of the Amending Act but also the purpose for which such amendment was
made leads me to the conclusion that the provisions of Section 12 have to be applied on the date when the person is approached in connection with his
possible appointment as an Arbitrator. If he is so approached after the commencement of the Amending Act, in my opinion, certainly the Amended
Act would be applicable.
7. This Court had also considered the Judgment of the Supreme Court in Aravali Power Company (supra) and held as under:
“29. In my view, the judgment of the Supreme Court in Aravali Power Company (Supra) would not be applicable to the facts of the present case
as in that case not only was the invocation of arbitration prior to the coming into force of the Amending Act, but also, the Arbitrator had been
appointed and the parties had even appeared before the Arbitrator before coming into the force of the Amending Act. The provisions of the Amended
Act were sought to be relied upon to challenge the appointed Arbitrator. The Supreme Court held that as the invocation of Arbitration, the appointment
of an Arbitrator and even the arbitration proceedings had commenced prior to the coming into force of the Amended Act, the statutory provisions that
would govern the controversy therein are those that were in force before the Amending Act came into effect. The Supreme Court did not consider
the issue as to whether the Amended Act would apply where the Arbitrator is being appointed after the coming into force of the Amended Act.
8. In view of the above, merely because the Arbitration Agreement had been invoked prior to the coming into force of the Amending Act and the
arbitration proceedings had commenced before the earlier Arbitrator prior to coming into force of Amending Act, the respondent could not have
proceeded to appoint an ineligible Arbitrator under Section 12(5) read with the Seventh Schedule of the Act after coming into force of the Amending
Act. At the time of such appointment, the eligibility of the Arbitrator had to be considered in accordance with the laws applicable to such appointment,
including Section 12(5) and the Seventh Schedule of the Act. The Arbitrator being a serving employee of the respondent, was ineligible to be
appointed in terms of Entry 1 of the Seventh Schedule to the Act and therefore, all proceedings that were conducted by him were not in accordance
with the law.
9. In the present case, the petitioner had challenged the authority of the Arbitrator by raising objections under Section 13 of the Act before the
Arbitrator. The said challenge was rejected by the Arbitrator in his Impugned Award. In terms of Section 13(5) of the Act, the petitioner was
therefore, entitled to challenge such Award including on the ground of ineligibility of the Arbitrator. Also, there was no waiver to the applicability of
Section 12(5) of the Act in terms of the Proviso to Section 12(5) of the Act.
10. In Dharma Prathishthanam v. Madhok Construction (P) Ltd., (2005) 9 SCC 686 the Supreme Court has held as under:
“27. In the event of the appointment of an arbitrator and reference of disputes to him being void ab initio as totally incompetent or invalid the award
shall be void and liable to be set aside dehors the provisions of Section 30 of the Act, in any appropriate proceedings when sought to be enforced or
acted upon. This conclusion flows not only from the decided cases referred to hereinabove but also from several other cases which we proceed to
notice.
28. In Chhabba Lal v. Kallu Lal [AIR 1946 PC 72 : 73 IA 52] Their Lordships have held that an award on a reference presupposes a valid reference.
If there is no valid reference, the purported award is a nullity.
29. On this point, there is near unanimity of opinion as amongst the High Courts of the country as well. Illustratively, we may refer to a few cases. In
Union of India v. Ajit Mehta and Associates [AIR 1990 Bom 45 : (1989) 3 Bom CR 535] (AIR para 34) the Division Bench held that the court has
suo motu power to set aside an award on grounds other than those covered by Section 30 such as an award made by arbitrators who can never have
been appointed under Section 8, as such an award would undoubtedly be ab initio void and non est.
In Union of India v. K.S. Kalra[AIR 1992 MP 47] and Rajendra Dayal v. Govind [1970 MPLJ 322] both Division Bench decisions, the High Court of
Madhya Pradesh has held that in certain situations the court may set aside an award even without there being an application under Section 30 or even
if the petition under Section 30 has not been filed within the period of limitation if the court finds that the award is void or directs a party to do an act
which is prohibited by law or is without jurisdiction or patently illegal. We need not multiply the number of authorities on this point as an exhaustive and
illuminating conspectus of judicial opinion is found to be contained in Law of Arbitration and Conciliation “ Practice and Procedure by S.K. Chawla
(2nd Edn., 2004 at pp. 181-84) under the caption “ “Whether the court has suo motu power to set aside an arbitral award “ and the answer
given in the discussion thereunder is in the affirmative.
30. Though it has been held in Union of India v. Om Prakash [(1976) 4 SCC 32 ]that an objection on the ground of invalidity of a reference is not
specifically covered by clauses (a), (b) and (c) of Section 30, yet it is included in the residuary expression “or is otherwise invalid and could have
been set aside on such an application being made. However, the above decision cannot be treated as an authority to hold that an award which is void
ab initio and hence a nullity consequent upon an invalid appointment and an invalid reference in clear breach of the provisions contained in Sections 8,
9 and 20 of the Act, can still be held to be valid if not objected to through an objection preferred under Section 30 of the Act within the prescribed
period of limitation.
11. In view of the above, the Review Application and consequently the petition under Section 34 of the Act are allowed and the order dated
12.03.2018 passed by this Court is recalled. The Arbitral Award dated 05.07.2017 passed by the Sole Arbitrator is set aside, leaving it open to the
parties to initiate fresh proceedings in accordance with the law. In such proceedings parties shall be entitled to claim the benefit of limitation in terms
of Section 43(4) of the Act.
12. There shall be no order as to cost.
