Case Note & Summary
The dispute arose from six separate construction contracts awarded by the Central Public Works Department (CPWD) to M/s Sri Krishna Shelters Pvt. Ltd. between 2014 and 2015 for various works at NITK Surathkal. Disputes arose regarding delays and compensation claims, leading to invocation of arbitration under clause 25 of the agreements. The Chief Engineer, acting as appointing authority, initially proposed one arbitrator and then appointed four retired Additional Director Generals of CPWD as arbitrators. The petitioner objected, arguing that the appointments were invalid under the amended Arbitration and Conciliation Act, 1996, because the arbitrators were ineligible being former employees of a party. The objections were rejected by the arbitrators themselves, who held that clause 25 did not require the petitioner's consent. Subsequently, some arbitrators resigned and new appointments were made. The petitioner then filed these civil miscellaneous petitions under Section 11(6) and 12 of the Act for appointment of a substitute independent arbitrator. The respondent opposed the petitions, contending that the appointments were valid and that the petitioner had alternative remedy under Section 13. The court, after hearing both sides, held that after the 2015 amendment, any person falling within Schedule VII (referred to as Schedule VI in the judgment) is ineligible to act as an arbitrator unless expressly agreed. The appointed arbitrators, being retired officers of CPWD, were covered by the ineligibility entries and the petitioner had not given express written consent. Clause 25 of the agreement, which permitted appointment of departmental officers, was declared contrary to Section 12(5) and void. The court concluded that the arbitrators were de jure unable to perform, and the petitions were maintainable. Accordingly, the court set aside all previous appointments and appointed Justice A.V. Chandrashekar, a former judge of the High Court, as sole arbitrator to adjudicate all disputes arising from the six contracts, with arbitration to be conducted at Bengaluru and fees as per the Fourth Schedule.
Headnote
A) Arbitration Law - Appointment of Arbitrator - Eligibility - Arbitration and Conciliation Act, 1996, Sections 12(5) and Schedule VII (referred to as Schedule VI in the judgment) - The court found that the arbitrators appointed by the respondent were retired officers of CPWD and fell within the categories of persons ineligible to act as arbitrators under Schedule VII, including as employees or consultants of one of the parties. The petitioner had not given express written consent after the disputes arose, so the appointments were void ab initio. Held that the arbitrators were de jure unable to perform their functions. (Paras 9-12) B) Arbitration Law - Appointment Procedure - Contractual Clause - Arbitration and Conciliation Act, 1996, Section 12(5) - The court examined clause 25 of the agreement which allowed the Chief Engineer to appoint an arbitrator who could be an employee of CPWD. It held that such a clause is against the mandate of Section 12(5) and thus cannot be given effect. Even if the agreement contemplated appointment of a departmental officer, the amended provisions render such appointment invalid unless the parties expressly agree. (Paras 9-11) C) Arbitration Law - Powers of Court - Substitution of Arbitrator - Arbitration and Conciliation Act, 1996, Section 11(6) - The court held that when the arbitrators appointed by a party are ineligible and the agreed appointment procedure fails, the court can appoint an independent arbitrator under Section 11(6). The petitioner's application was maintainable, and the court exercised its power to appoint a former judge as sole arbitrator to resolve all disputes. (Paras 14-15)
Issue of Consideration
Whether the petitioner is entitled to the appointment of a substitute arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, on the ground that the arbitrators appointed by the respondent are ineligible under Section 12(5) read with Schedule VII (referred to as Schedule VI in the judgment).
Final Decision
The petitions are allowed. The appointments of Sri L.P. Srivastava, Sri Jagmohan Lal, and Sri K. Srinivasan as arbitrators made by the respondent are set aside. Justice A.V. Chandrashekar, former Judge of the High Court of Karnataka, is appointed as sole arbitrator to adjudicate all disputes arising under the six agreements. The arbitration shall be conducted at Bengaluru and the fees shall be as per the Fourth Schedule of the Act.
Law Points
- Arbitrator must be independent and impartial
- persons covered by Schedule VII are ineligible to act as arbitrator unless parties expressly agree otherwise in writing
- a contractual clause that permits a party to appoint its own employee as arbitrator is contrary to Section 12(5) and void after the 2015 amendment
- court has power under Section 11(6) to appoint a substitute arbitrator when the agreed appointment procedure fails or the appointed arbitrator is de jure unable to perform.
