Arbitration in India was brought into the picture with an objective of providing speedy and cost-effective dispute resolution between litigating parties. The sole purpose was to reduce litigation and minimize the role of courts. However, even after the enactment of the Arbitration and Conciliation act, 1996, there has been a constant pressure over judiciary to adjudicate matters of arbitration majorly dealing with the appointment of an arbitrator.
Significantly, the appointment of an arbitrator has been challenged in the court of law, whenever there are certain circumstances “giving rise to justifiable doubts as to his independence or impartiality“. In a recent judgment delivered by the division bench of the Supreme Court headed by Justice Indu Malhotra and Justice Abhay Manohar Sapre, have held that a former employee of a company can be appointed as an arbitrator even if he was an employee of a company which is a party to the arbitration. Further, the court also held that the Arbitration and Conciliation Act, 1996 does not preclude a former employee from being appointed as an arbitrator provided that “there are no justifiable doubts as to his/her independence or impartiality” to act as an arbitrator.
In the present case, the appellant i.e. the State of Haryana (PWD) awarded a contract of construction, maintenance and operation to the respondent (M/s. G. F. Toll Road Private Limited). Further, a concession agreement was also executed between both the parties. The concession agreement contained a dispute resolution clause which provided that “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, a dispute arose between the parties and the respondent invoked the arbitration clause and thereafter made a request before the Indian Council of Arbitration to commence arbitration proceedings. Thereafter, both the parties nominated their respective arbitrators. However, the Indian Council of Arbitration raised an objection with regards to the nominee arbitrator of the state on the ground that the nominee of the state i.e. Engineer-in-Chief was a retired employee of company of a State and therefore, there exist circumstances as to his impartiality and integrity to go about as an arbitrator. However, the Appellant state opposed the objection raised by the Indian Council of Arbitration stating that there exists no such rule, which prohibits such nomination as the nominee arbitrator was a retired employee for over 10 years and therefore, there could not exist any circumstances, which could give rise to justifiable doubt as to his integrity and impartiality to act as an arbitrator.
Nonetheless, the Indian Council of Arbitration emphasized that there exist a stable relationship between the State and its nominee; consequently, there happen to be circumstances suggesting the existence of biases in arbitrating the dispute. Further, the Indian Council of Arbitration stated that it shall appoint an arbitrator on its own replacing the one appointed by the Appellant. Thereupon, the appellant State requested for a time period of 30 days, so as to appoint a substitute arbitrator. However, the Indian Council of Arbitration went ahead and appointed a nominee arbitrator against the request of the Appellant State and further appointed a presiding arbitrator.
Later, the Appellant State went on to challenge the appointment of a substitute arbitrator made by the Indian Council of Arbitration on its behalf and filed a petition before the District Court of Chandigarh under Section 15 of the “Arbitration and Conciliation Act, 1996.” The Appellant’s case was that the “constitution of the arbitral tribunal was illegal, arbitrary and against the principles of natural justice.” Further, the Appellant State also raised an objection under section 16 of the Arbitration and Conciliation Act, 1996, concerning the issue of jurisdiction. However, the District Court inter alia held that the present petition under Section 16 is not maintainable as the Arbitral tribunal has already been constituted; therefore, the state is supposed to raise any objection with respect to section 16 before the tribunal itself.
Against the decision of the District Court, the Appellant State filed a Civil Revision Petition before the Punjab & Haryana High Court which on contrary upheld the decision of the District Court. The High Court further held that when an agreement is silent with regards to the mode of appointment of a substitute arbitrator and an objection is raised regarding such nomination, “then the rules applicable would be those of the institution under which the arbitration is held.” Pertaining to this, the application filed by the Appellant under Section 16 of the Arbitration and Conciliation Act, 1996, was also dismissed by the Arbitral Tribunal.
Aggrieved by the decision of the High Court, the Appellant State went on to file a SLP before the Hon’ble Supreme Court, where the court in reference to the issue of the appointment of a Substitute Arbitrator by the Indian Council of Arbitration observed that the High Court has committed an error while delivering the judgment as it failed to acknowledge Section 15(2) of Arbitration and Conciliation Act, 1996, which provides that “a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.” Further, relying on the judgment in the case of ACC Ltd v Global Cements Limited, the court held that “the procedure agreed upon by the parties for the appointment of the original arbitrator is equally applicable to the appointment of a substitute arbitrator, even if the agreement does not specifically provide so.”
Therefore, the appointment of the nominee arbitrator made by the Indian Council of Arbitration on behalf of the Appellant State was found to be unjust as the agreement itself provides that each of the party shall appoint a nominee arbitrator and the presiding officer was supposed to be appointed in accordance with the rules of Indian Council of Arbitration. As a matter of fact, the appointment made by the Indian Council of Arbitration was contrary to its own rules, particularly since it did not adhere to the request made by the Appellant State for the grant of 30 days for appointing a substitute arbitrator. The Indian Council of Arbitration could have topped off the opportunity, in case no appointment has been made by Appellant State during that period or if there existed circumstances suggesting that the Appellant State had no intention to appoint a substitute arbitrator.
For deciding the issue regarding the appointment of the nominee arbitrator by the State, the court relied upon the judgment of Medicaments and Related Classes of Goods and Locabail Ltd. v. Bayfield Properties and held that in order to determine biasness, the test to be used is “whether the circumstances are such as would lead to a fair-minded and informed person to conclude that the arbitrator was in fact biased.” It was further observed by the court that both the Arbitration and Conciliation Act, 1996 and the Arbitration Amendment Act, 2015 did not disqualify a former employee from being appointed as an arbitrator unless “there are justifiable doubts as to his independence and impartiality.” Moreover, in the present case, the nominee arbitrator appointed by the Appellant State had been a former employee for over 10 years and mere allegations without justifiable doubt as to his independence and impartiality cannot become the ground for his removal as an arbitrator. Therefore, the allegations made by the Indian Council of Arbitration were found to be baseless and untenable.
Impartiality and independence of an arbitrator have always been a contentious and an exceedingly subjective issue. However, with the introduction of the Fifth Schedule by the Arbitration Amendment Act, 2105, the issue of the appointment of an arbitrator has largely been clarified. Various grounds have been inserted under the schedule in order to determine the nature of the appointment. Therefore, the court is now only supposed to interfere in the cases, where there exist circumstances giving rise to justifiable doubts as to the independence and impartiality of a former employee to go about as an arbitrator.
Supreme Court while delivering this
judgment has only considered an exposed understanding of the provisions
relating to the appointment of an arbitrator and has overlooked the fact that
the case is a pre-amendment case and yet it engendered the objective of the 2015
Amendment Act. However, it is pertinent to mention that the court had failed to
acknowledge the likelihood of predisposition as there may be a situation where
a former employee might get influenced by his employer or a situation where
they do not share a healthy relationship. Therefore, it is hard to predict or
ascertain any such circumstance which could suggest or creates justifiable
doubts as to the independence or impartiality of an arbitrator and thereby,
once again creating a doubt in the mind of the parties to opt for arbitration
as a dispute resolution method.
 India: Appointment of Arbitrators by Indian Government Owned Entities: Dos And Don’ts, < http://www.mondaq.com/india/x/599816/Arbitration+Dispute+Resolution/Appointment+Of+Arbitrators+By+Indian+Government+Owned+Entities+Dos+And+Donts >
 The Government of Haryana PWD Haryana v. M/s. G.F. Toll Road Pvt. Ltd. & Ors, CIVIL APPEAL NO. 27/2019.
 Id. at Para 2.7
 ACC Ltd v Global Cements Limited ((2012) 7 SCC 71)
 Medicaments and related Classes of Goods (No 2) (2002 (1) All ER 465)
 Locabail Ltd. v. Bayfield Properties,  Q.B. 451