Author: Parnika Choudhary, 3rd year, Bharati Vidyapeeth University.
Citation: (2019) 5 SCC 755
Date of Decision: April 16, 2019
Bench: R. F. Nariman & Vineet Saran
Original Copy: View
Statutes involved: Arbitration and Conciliation Act, 1996
Issues in question:
- Whether Section 12 (5) of Arbitration and Conciliation Act, 1996 was correctly interpreted?
- On which grounds the High Court dismissed BBNL’s petition for the appointment of a substitute Arbitrator?
Background of the case:
- On August 5, 2013, BBNL (Bharat Broadband Network Ltd.) announced a tender for a turkey project involving GPON and Solar Power Equipment. As a result, UTL (United Telecoms Limited) was chosen as the L-1 bidder (lowest bidder), and an Advance Purchase Order was issued in their favour on September 30, 2014.
- On January 3, 2017, UTL demanded the appointment of an Arbitrator to resolve the issue and the same was appointed by the chief and Managing Director, BBNL on January 17, 2017.
- During their arbitration process, the Supreme Court rendered a decision in TRF Limited, stating that the Managing Director is not in a position to appoint the Arbitrator because he is a party to the arbitration. Due to this decision of the Supreme Court, BBNL requested that the Sole Arbitrator declare that, as a result of the TRF Judgment, he is de jure unable to perform the role of Arbitrator and the appointment would be considered null and void by the Court. Therefore, he should step down as an Arbitrator and allow the High Court to pick a replacement. UTL, on the other hand, did not object and was fine if the appointed arbitrator continued to perform for them.
- However, on October 21, 2017, the Arbitrator denied BBNL’s application. As a result, on October 28, 2017, BBNL filed a petition with the Delhi High Court, requesting the appointment of a substitute Arbitrator under Sections 14 and 15, but the plea was denied.
- The main contentions given by both the parties are:
- BBNL cited Sections 12, 13, and 14 of the Arbitration and Conciliation Act, 1996 (hereinafter, the Act) and the TRF Limited Judgment, claiming that the latter is a statement of law that applies to the case, rendering the appointment of a sole Arbitrator void-ab-initio. Also, there is no express written agreement between the parties following a dispute, which is a must.
- UTL argued that Section 12(4) authorises a party to contest an Arbitrator’s appointment solely based on new evidence discovered after the Arbitrator was appointed. Such objections must be lodged within 15 days of learning of the circumstances that led to the challenge, according to Section 13(2). The petition is likely to be dismissed since these deadlines were not reached.
- The Delhi High court dismissed the plea filed by the BBNL on the following main grounds:
- BBNL, which nominated the Arbitrator, is barred from claiming that the Arbitration cannot continue, and
- UTL did not object or reserve any objections to the selection of the Arbitrator in its Statement of Claim. As a result, a waiver under Section 12(5) of the Act would be required.
- Thereafter, BBNL moved to the Supreme Court challenging the decision of the Delhi High Court.
- The Supreme Court upheld the appeal and overturned the Delhi High Court’s decision, effectively ending the mandate of the Sole Arbitrator. The Supreme Court further ordered the Delhi High Court to select a replacement arbitrator with both parties’ permission.
- In a nutshell, the Supreme Court stated, that an individual who falls in any of the kinds set out withinside the Seventh Schedule, is not eligible by law to be appointed as an arbitrator. The only exception to this rule is a waiver made through a written agreement, otherwise, his mandate terminates and some other arbitrator shall replace him below Section 14(1) of the Act. The court also mentioned, that if there are disputes about whether the person concerned becomes de jure incapacitated, the injured party must turn to the court for resolution.
- The Apex Court, additionally determined the relationship between section 12(5) and section 4 of the said act by stating that the exception of waiver mentioned under section 4 will be best applied only if an explicit agreement in written form among both the parties is made after the dispute arose between them.
- This case law revolves around the appointment of an Arbitrator by someone unqualified to be an arbitrator is void from the start. It also deals with the correct interpretation of Section 12(5) of the Act. The decision of this case law provides us with a fantastic opportunity to examine many facets of the Arbitration Process’ independence and impartiality.
- Arbitration means resolving disputes between the parties using private settlement methods instead of going to the courts. Thus, an Arbitrator should be well qualified to perform all the required functions. The appointment of an Arbitrator is not only the primary, but one of the most important steps in the whole process of arbitration because everything revolves around the arbitrator and how he is handling the case and thus, it must be fair and just. Also, it should be according to the mentioned laws and rules to be valid in the eyes of law.
- Through this case law, the Supreme Court has touched many aspects of the Arbitration process and has also given transparency to many provisions of the Act, majorly section 4, 12, 13, 14 and schedule 5, 6 and 7.
- The Court’s principal goal in issuing this decision was to keep citizens and parties participating in the arbitration process trusting the process by ensuring that Arbitrators were appointed in a just and fair manner. As a result, the Supreme Court permitted the appeal by throwing aside the challenged ruling to maintain fairness and justice. In addition, the High Court was directed to select a new Arbitrator with the approval of both parties.