SC: Mere neglect of an Arbitrator to act or delay in passing the Award by itself cannot be the ground to appoint another Arbitrator

By Lovisha Aggarwal | January 23, 2019

CASE:               Rajasthan Small Industries Corportion Limited v. M/s Ganesh Containers Movers Syndicate (Decided on: January 23, 2019)

COURT:           Supreme Court of India

LAW POINTS: In deviation from the terms of the agreement, whether the respondent was right in filing arbitration petition under Section 11 of the Arbitration Act:-

The legislative intent is that the parties should abide by the terms of the arbitration agreement. The fact that the sole arbitrator is the Managing Director of the appellant-Corporation is not a ground to raise a presumption of bias or lack of independence on his part. The arbitration Clause 4.20.1 of Schedule-4 (General Conditions) stipulates a high official i.e. – Managing Director of the Corporation not connected with the contract or the work executed by the respondent. Having participated in the entire arbitration proceedings and acquiesced in the proceedings, the respondent is estopped from challenging the competence of the arbitrator. The respondent was not justified in filing the arbitration petition seeking appointment of an independent arbitrator.

Whether by virtue of Section 12 of the Amendment Act, the Managing Director has become ineligible to act:-

 After the amendment to the Arbitration and Conciliation Act, 2015, Section 12(5) prohibits the employee of one of the parties from being an arbitrator. In the present case, the agreement between the parties was entered into on 28.01.2000 and the arbitration proceedings commenced way back in 2009 and thus, the respondent cannot invoke Section 12(5) of the Arbitration and Conciliation (Amendment) Act, 2015. As per Section 26 of the Act, the provisions of the amended Act 2015 shall not apply to the arbitral proceedings commenced in accordance with the provisions of Section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree.

Whether the High Court was right in terminating the mandate of the arbitrator appointed as per the agreement and appointing a substitute arbitrator in the application filed under Section 11(6) and Section 15 of the Arbitration Act :-

Mere neglect of an arbitrator to act or delay in passing the award by itself cannot be the ground to appoint another arbitrator in deviation from the terms agreed to by the parties.

Section 15 deals with termination of the mandate and substitution of an arbitrator. Sub-section (1) of Section 15 states that in addition to the circumstances referred to in Sections 13 and 14 of the Act, the mandate of an arbitrator shall terminate where he withdraws from office for any reason or by pursuant to the agreement of the parties. In terms of sub-section (2), after termination of arbitrator’s mandate, the appointment of the substitute arbitrator shall be in accordance with the rules applicable to the appointment of an arbitrator who is being replaced. In the case in hand, the High Court, was not right in appointing an independent arbitrator without keeping in view the terms of the agreement between the parties and therefore, the impugned order appointing an independent arbitrator/retired District Judge is not sustainable.

Remedy to the Respondent-Contractor:-

Since the High Court was in seisin of the matter, the Arbitral Tribunal could have given further opportunity to the respondent to put forth his case. The proceedings of the Arbitral Tribunal was pending for quite some time from 2009 till 2015 and after the respondent approached the High Court in May, 2015, the arbitrator appears to have hurriedly passed the award. The respondent has made number of claims under various heads. The respondent has to be given an opportunity to substantiate its claim under various heads. In order to do complete justice between the parties and in exercise of power under Article 142 of the Constitution of India, the award dated 21.01.2016 is to be set aside.

In exercise of power under Article 142 of the Constitution of India, it is open to the court to mould the relief by safeguarding the interest of parties. The phrase “complete justice” engrafted in Article 142(1) is the word of width couched with elasticity to meet myriad situations created by human ingenuity or cause or result of operation of Statute law or law declared under Articles 32, 136 and 141 of the Constitution.

Held:               In the result, the impugned order of the High Court dated 22.04.2016 is set aside and this appeal is allowed. The present Managing Director of the appellant-Rajasthan Small Industries Corporation Limited shall be the sole arbitrator and the Managing Director is directed to take up the matter and continue the proceedings and afford sufficient opportunity to both the parties to adduce further evidence and to make oral submissions and pass the final award within a period of four months. It is made clear that the arbitrator may not be influenced by any of the views expressed by the High Court.

Read the complete Judgement here