The Calcutta High Court opined that Section 12(5) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “A&C Act”) is a relationship-conflict provision. Since every conflict can be circumvented by the parties, no appointment can be treated as void ab initio or incapable of being cured by an express written agreement. The High Court expounded that the provisions of the A&C Act including Section 12(5) read with proviso are not fact-neutral. Section 12(5) is not context-indifferent where a party continuously accepts the appointment of an arbitrator and then by filing one simple application for termination of the mandate, the arbitration is wiped out.
The Bench enunciated that on the filing of application of Section 12(5), all unilateral appointments of arbitrators cannot be automatically nullified. There is a difference between an arbitrator who is hit by one or all conflicted relationships in the 7thschedule and an arbitrator who is rendered ineligible simply because of the unilateral appointment.The Court further propounded that unilateral appointment must mean that unilateral appointment made by a person who is disqualified to act as an arbitrator under the 7thschedule and not every unilateral appointment made by one of the parties to the arbitrator.
Brief Facts:
The present application has been filed under Section 14 of the A&C Act for termination of the mandate of the Learned Sole Arbitrator.
Contentions of the Petitioners:
It was alleged that the appointment is invalid as the Arbitrator was unilaterally appointed. Further, it was contended that no express agreement was entered into in writing to circumvent the invalidity of the appointment. The participation of the Petitioner in the proceedings would not amount to waiver.
Contentions of the Respondent No.1:
It was urged that Petitioner were aware of the disclosure made by the Arbitrator and willingly participated in the proceedings. Further, the pleadings and affidavits filed by the Petitioners including the stand taken in the arbitration tantamount to waiver.
Observations of the Court:
It was observed that as per the legislative scheme of the A&C Act, the challenge to the appointment of an Arbitrator must be accompanied by supporting circumstances that give rise to justifiable doubts regarding independence and impartiality. Further, it was noted that the entire challenge procedure is premised on the party being aware of the conflict post-appointment.
Proviso to Section 12(5) provides an option for a waiver by way of an express agreement in writing between the parties regarding the appointment of an arbitrator despite there being a conflict of interest due to independence or impartiality.
Giving the parties the autonomy to decide, the proviso provides for an agreement that should be like an express promise as defined under Section 9 of the Indian Contract Act of 1872. The agreement must be in writing and be made by the party who takes objection to the appointment of the arbitrator. The requirement of an agreement does not require both parties to execute a formal agreement as the one who made the appointment might not raise an issue at all.
In the present case, it was observed that the Petitioners’ participation in the proceedings was a conscious and deliberate decision. Despite various decisions of the Supreme Court, the Petitioner chose to continue with the arbitration proceedings. It was also noted that the pleadings filed by the Petitioner at different stages of the proceedings amount to “express agreement in writing” as per proviso to Section 12(5). The Court further differentiated between the express agreement and the deemed waiver as provided under Section 4 of the A&C Act.
It was opined that Section 12(5) is a relationship-conflict provision. Since every conflict can be circumvented by the parties, no appointment can be treated as void ab initio or incapable of being cured by an express written agreement. The High Court expounded that the provisions of the A&C Act including Section 12(5) read with proviso are not fact-neutral. Section 12(5) is not context-indifferent where a party continuously accepts the appointment of an arbitrator and then by filing one simple application for termination of the mandate, the arbitration is wiped out.
The Bench enunciated that on the filing of application of Section 12(5), all unilateral appointments of arbitrators cannot be automatically nullified. There is a difference between an arbitrator who is hit by one or all conflicted relationships in the 7thschedule and an arbitrator who is rendered ineligible simply because of the unilateral appointment.
The Court further propounded that unilateral appointment must mean that unilateral appointment made by a person who is disqualified to act as an arbitrator under the 7thschedule and not every unilateral appointment made by one of the parties to the arbitrator.
In the present case, the written statements and pleadings of the Petitioners’ as noted amounted to a waiver as per proviso to Section 12(5).
The Decision of the Court:
Based on the above-mentioned reasons, the Calcutta High Court noted that the Petitioners’ conduct and actions amount to clear and unambiguous express written agreement as provided for in proviso to Section 12(5) and hence, there was no material based on which appointment of the arbitrator could be challenged. Accordingly, the AP filed by the Petitioners was dismissed.
Case Title:McLeod Russel India Limited & Anr. V. Aditya Birla Finance Limited & Ors.
Coram:Hon’ble Justice Moushumi Bhattacharya
Case No.:A.P. No. 106 of 2020
Advocates for Petitioners:Advs. Mr. Abhrajit Mitra, Mr. Jishnu Chowdhury, Mr. Rajarshi Dutta, Mr. Chayan Gupta, Mr. Reetoban Sarkar, Mr. Prasun Mukherjee, Mr. Deepak Agarwal
Advocates for Respondents:Advs. Dr. Abhishek Manu Singhvi, Mr. Ranjan Bachawat, Mr. Sanjeev Kumar, Mr, Rohit Das, Mr. Dwaipayan Basu Mullick, Ms. Suchismita Ghosh Chatterjee, Mr. Abhishek Kisku, Mr. Pranshu Paul, Mr. Anshul Sehgal, Mr. Subhankar Das, Mr. Nidhi Ram
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