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The Supreme Court in the case of Government of Haryana PWD Haryana (B and R) Branch v. M/s G. F. Toll Road Private Limited and Others (dated January 3, 2019) held that the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) does not disqualify a former employee from acting as an arbitrator, provided there are no reasonably justifiable apprehensions as to his independence and neutrality.

M/s G. F. Toll Road Private Limited (“Respondent 1”) entered into a contract with the Government of Haryana, PWD Haryana (B and R) Branch (“Appellant”) for construction, operation and maintenance of Gurgaon-Faridabad Road and Ballabhgarh-Sohna Road on December 12, 2008. The parties further entered into a Concession Agreement dated January 31, 2009 (“Agreement”) for the same. Clause 39.2.2 of the Agreement (Dispute resolution) is reproduced hereinbelow:

“There shall be a Board of three arbitrators of whom each party shall select one and the third arbitrator shall be appointed in accordance with the Rules of Arbitration of the Indian Council of Arbitration”.

Subsequently, disputes arose between the parties and the Indian Council of Arbitration (“Respondent 2”) was requested to commence arbitration proceedings by a letter dated March 30, 2015.

The Appellant appointed a retired Engineer-in-Chief, Mr. R. K. Aggarwal, who was a retired employee of the State of Haryana as its nominee arbitrator. Respondent 2, which was conducting the arbitration proceedings, advised the Appellant to reconsider its choice on the grounds that there might be justifiable doubts with respect to his integrity and impartiality. Respondent 1 raised an objection alleging the same.

Consequently, the Appellant requested for a period of 30 days to appoint an alternative arbitrator. However, before the 30 day period was complete, the Respondent 2 informed the Appellant that it had already appointed a nominee arbitrator as well as the presiding officer. The Appellant sought to challenge the above and filed a application under Section 15 (Termination of mandate and substitution of arbitrator) of the Arbitration Act before the Chandigarh District Court and an objection under Section 16 (Competence of arbitral tribunal to rule on its jurisdiction) of the Arbitration Act before the arbitral tribunal itself. Both these contentions were dismissed. A civil revision petition was also filed by the Appellant before the Punjab and Haryana High Court, which was dismissed. Aggrieved by the judgement of the Punjab and Haryana High Court, the Appellant filed a special leave petition before the Supreme Court.

Whether a former employee can be appointed as an arbitrator under the provisions of the amended Arbitration Act.

The Appellant argued that the appointment of the nominee arbitrator was illegal and contrary to the rules laid down by the Respondent 2. Further, it was argued that since it has been more than ten years since Mr. Aggarwal’s retirement, there cannot exist any proclivity or bias. The Appellant cited the judgement of the House of Lords in Locabail Limited v. Bayfield Properties [(2002 (1) All ER 465)] which stated:

“The greater the passage of time between the event relied on as showing a danger of bias and the case in which the objection is, raised, the weaker (other things being equal) the objection will be.”

The Respondent 1 and the Respondent 2 (collectively referred to as the “Respondents”) argued that the appointment of Mr. Aggarwal as the arbitrator was inappropriate as he is a retired employee of the Appellant and that his ability to be fair, just and impartial is dubious. The Respondents also argued that the Arbitration and Conciliation (Amendment) Act, 2015 (“2015 Amendment”), which added the Fifth Schedule to the Arbitration Act, enumerates grounds which give rise to justifiable doubts as to the independence or impartiality of arbitrators. Part 1 of the Fifth Schedule of the Arbitration Act states that the impartiality of an arbitrator can be questioned, if:

“The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.”

The Supreme Court in its judgement clarified that even though the 2015 Amendment would not apply in this case as the appointment in question was made before the amendment was passed, the amendment itself does not preclude any person who was an ex-employee from being appointed as an arbitrator. The Supreme Court ruled that the words “is an” indicates that the person so nominated is only disqualified if he/she is a present/current employee, consultant, or advisor of one of the parties. It further observed that the words “other” indicates a relationship other than an employee, consultant or an advisor and therefore held that the word “other” cannot be used to widen the scope of the section to include former employees.

The Supreme Court further stated that the contention raised by the Respondents that there would be bias was not substantiated by any evidence and it could not be objectively determined. It held that mere allegations of bias without a factual matrix supporting the same could not end up disqualifying an arbitrator.

The Supreme Court set aside the earlier judgement of the Punjab and Haryana High Court and stated that the appointment of Mr. Aggarwal was valid. However, during the pendency of the proceedings, both parties mutually agreed to arbitration being conducted by a single arbitrator in supersession of the arbitration clause in the Agreement, and therefore the Supreme Court directed that the sole arbitrator shall proceed in continuation of the previously-constituted arbitral tribunal.

Vaish Associates Advocates View
This judgement of the Supreme Court clarifies an important proposition of law regarding the appointment of a former employee as an arbitrator post the 2015 Amendment. It clarifies that even though the person is a former employee of a party, that in itself cannot disqualify him from being appointed as an arbitrator. Further, the burden to show that the appointed arbitrator cannot exercise his/her mandate without bias or favoritism is firmly placed on the alleging party. It is also clarified that mere allegations are not enough to give rise to justifiable doubts as to the independence or impartiality of an arbitrator under the Fifth Schedule of the Arbitration Act added in the 2015 Amendment and therefore the same should be substantiated by sufficient evidence.

Therefore, this judgement can be construed as a pro-arbitration judgement. However, the courts must be vigilant as bias must be judged on a case-to-case basis, and in cases where there can be an obvious indication of bias, the judiciary must step in to ensure that there is no impropriety.

For more information please write to Mr. Bomi Daruwala at [email protected]