Case Note & Summary
The Supreme Court allowed the appeal filed by the Government of Haryana against the order of the Punjab and Haryana High Court, which had dismissed the State's civil revision petition challenging the appointment of an arbitrator by the Indian Council of Arbitration (ICA). The dispute arose from a Concession Agreement dated 31.01.2009 between the State and M/s. G.F. Toll Road Pvt. Ltd. for a BOT project. The agreement contained an arbitration clause providing for a three-member arbitral tribunal, with each party nominating one arbitrator and the third appointed by the ICA under its Rules. After disputes arose, the respondent invoked arbitration and nominated its arbitrator. The State nominated Mr. M.K. Aggarwal, a retired Chief Engineer who had retired over 10 years ago. The ICA objected to this nomination on grounds of potential bias due to his former employment with the State. Despite the State's request for 30 days to appoint a substitute, the ICA appointed an arbitrator on behalf of the State and a presiding arbitrator. The State challenged this before the District Court under Section 15 of the Arbitration and Conciliation Act, 1996, which dismissed the petition as not maintainable. The High Court upheld this, holding that the State could raise the issue under Section 16 before the tribunal. The Supreme Court held that the High Court failed to consider Section 15(2), which mandates that a substitute arbitrator be appointed according to the rules applicable to the original appointment. Since the original agreement gave each party the right to nominate one arbitrator, the ICA could not usurp that right. The Court also held that a former employee is not per se disqualified; the test for bias is whether a fair-minded observer would conclude a real possibility of bias, and the passage of over 10 years since retirement made the allegation untenable. The Court set aside the impugned orders and directed the ICA to reconstitute the tribunal in accordance with the agreement, allowing the State to appoint its nominee arbitrator.
Headnote
A) Arbitration Law - Appointment of Substitute Arbitrator - Section 15(2) of the Arbitration and Conciliation Act, 1996 - The mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced. The procedure agreed upon by the parties for the original arbitrator applies equally to the substitute, even if not specifically provided. (Paras 3.1-3.2) B) Arbitration Law - Bias - Former Employee as Arbitrator - The 1996 Act does not disqualify a former employee from acting as an arbitrator, provided there are no justifiable doubts as to independence and impartiality. The test for bias is whether a fair-minded and informed observer would conclude a real possibility of bias. A retired employee of 10 years ago does not raise such doubts. (Paras 3.6-3.9) C) Arbitration Law - ICA Rules - Appointment by Institution - The ICA could fill the vacancy only if the State had no intention of appointing; it could not usurp jurisdiction before expiry of the 30-day period requested by the State. The appointment by ICA was unjustified and contrary to its own Rules. (Paras 3.4-3.5)
Issue of Consideration
Whether the Indian Council of Arbitration (ICA) could appoint a substitute arbitrator on behalf of the State of Haryana without giving the State an opportunity to appoint its own nominee, and whether a retired employee of a party is disqualified from acting as an arbitrator.
Final Decision
The Supreme Court allowed the appeal, set aside the impugned orders of the High Court and the District Court, and directed the ICA to reconstitute the arbitral tribunal in accordance with the agreement, allowing the State to appoint its nominee arbitrator. The Court held that the ICA's appointment was unjustified and that a former employee is not per se disqualified.
Law Points
- Section 15(2) of the Arbitration and Conciliation Act
- 1996
- appointment of substitute arbitrator
- rules applicable to original appointment
- ICA Rules
- bias test for arbitrator
- former employee as arbitrator
- Fifth Schedule of the Act
