Professional Documents
Culture Documents
Arbitration Cal HC 140223 McLeod Vs ABFL
Arbitration Cal HC 140223 McLeod Vs ABFL
Arbitration Cal HC 140223 McLeod Vs ABFL
Delivered on : 14.02.2023.
2
Moushumi Bhattacharya, J.
I. Introduction
Conciliation Act, 1996, for termination of the mandate of the Ld. Sole
2. The dispute between the petitioners and the respondents arises out of
no. 1 was described as the “Investor”. The Arbitrator was appointed under
dispute. Learned counsel appearing for the petitioners further submits that
to section 12(5) of the Act. Counsel relies on the applicability of the Seventh
Schedule of the Act in this regard and particularly Entry 12 thereof. Counsel
also relies on some of the Minutes of the Arbitration Sittings to urge that
time as envisaged under the proviso to section 12(5) of the Act. Counsel
Counsel submits that the petitioners were also aware of the judgments
Telecoms Limited and Perkins Eastman Architects DPC vs. HSCC (India)
Limited (which will be dealt with later) on the application of section 12(5) but
that the present application is an afterthought and has been filed only for
Defence. Counsel submits that the pleadings and affidavits filed by the
4
contemplated in section 12(5) and relies on the specific stand taken by the
before the Arbitrator, this Court and the Supreme Court under diverse
sections of the Act and pursuing parallel proceedings on the same issue
12(5) of the Act. The judgments cited are briefly referred to below, from the
7. Ellora Paper Mills Limited vs. State of Madhya Pradesh; (2022) 3 SCC 1,
Sahkari Sangh Ltd. Vs. Ajay Sales & Suppliers; which in turn relied on
Bharat Broadband Network Ltd. Vs. United Telecoms Ltd.; (2019) 5 SCC 755
8. In Jaipur Zila Dugdh Utpadak Sahkari Sangh Ltd. vs. Ajay Sales &
Broadband Network Ltd. vs United Telecoms Ltd.; (2019) 5 SCC 755 and held
that the mandate of an arbitrator who has become ineligible to perform his
functions under section 12(5) would automatically stand terminated and the
that the respondents had forgone their right to approach the High Court for
SCC 760 relied on the pronouncement of the Supreme Court in TRF Ltd. vs.
Energo Engineering Projects Ltd.; (2017) 8 SCC 377 to hold that the interest
made by that (ineligible) person and give rise to the possibility of bias with
(2019) 5 SCC 755, the Supreme Court again stressed on the firmness of an
the parties or being rendered thus under any of the categories in the
agreement being made with full knowledge of the parties and express words
11. In TRF Limited vs. Energo Engineering Projects Limited; (2017) 8 SCC
377, the Supreme Court opined that if the Managing Director of the
an arbitrator.
Govind Singh vs. M/s Satya Group Pvt. Ltd.; FAO (COMM) 136/2022 and CM
Nos. 41441/2022 & 41443/2022, the Court declined to impute any implied
waiver of the right under section 12(5) by conduct or otherwise. In that case
sole arbitrator. The Court accordingly terminated the mandate of the present
the parties.
14. The respondent no. 1 has cited Sadanand Das vs. The State of West
Bengal; CO No. 1676 of 2018 on the point that a challenge under section 13
7
the Act.
II. Decision
as the master of the proceeding until the making of the award. A substantial
part of section 12 was brought in by the Amendment Act of 2016 with effect
16. The second thrust of the amendment was to subject the situations
and 15 which provide for the substitution of the arbitrator whose mandate
inability to devote sufficient time to the arbitration coupled with his inability
18. Section 12 (5) nullifies any agreement made between the parties before
she falls within any of the categories under the Seventh Schedule.
19. The Seventh Schedule - brought into the Act with effect from
arbitrator and counsel, iii) arbitrator and the dispute and iv) arbitrator’s
arbitrator not only as a lawyer who may have advised or represented one or
more of the parties, but also as a person with a corporate background who
may have been part of the management of a company and even as a person
9
trading in stocks and shares or having close family ties with a third party
who may have a present or future interest in the dispute. In essence, the
family members of the arbitrator are also brought within the ambit of
20. The proviso gives an option to the parties to waive the applicability of
12(5) after disputes have arisen between the parties by way of an express
conflict, post-appointment.
The Arbitration and Conciliation Act, 1996; which would be evident from the
22. The Arbitration and Conciliation Act, 1996 was amended in 2016 to
incorporate the Fifth and Seventh Schedules to the Act. The Fifth and
Standards and consists of three colour-coded lists; Red, Orange and Green.
These lists contain specific scenarios which are likely to occur in arbitration
Waivable Red List – A serious but not severe situation whereby the
arbitrator.
24. Although the IBA Guidelines forms the inspiration behind the Seventh
Schedule, the proviso to 12(5) cuts through the Non-Waivable Red List and
the Waivable Red List to make the entire set of disqualifications in the
parties. This means that notwithstanding the absolute bar contained in the
11
the 1996 Act permits the parties to waive all, even the obvious areas of
disputes having arisen between the parties. In other words, the Act bestows
the final choice of deciding upon the parties as to whether a person can
25. The parties to the disputes and after such disputes have arisen, may
given the statutory nod for deciding on the procedure of the arbitration and
every other aspect of it. The only caveat is that the agreement should not be
1872. The requirement further presumes that the agreement in writing must
be made by the party who takes the objection to the appointment of the
arbitrator and seeks recourse under section 12(5). The requirement does not
entail both the parties executing a formal agreement since the other party
(who has made the appointment) may not raise the issue at all. The deeming
12
feature of the proviso further presumes that the express written agreement
II.B. Putting the facts in this case within the section 12(5) framework read
Arbitration:
parties.
ii) 11.5.2019: The respondent no. 1 issued the Arbitration Notice and
Agreement.
iii) 12.5.2019: The Ld. Sole Arbitrator made the disclosure under
section 12 and communicated the same to all the parties including the
petitioner. The disclosure was also recorded in the Minutes of the Meeting
no. 1’s application under section 17 and offered to provide security for
order dated 19.6.2019 subject to the offered securities being provided by the
under section 31(6) of the 1996 Act and admitted therein to the jurisdiction
27. The above dates show that the petitioner’s participation in the
Arbitration was not a one-off act or a mindless entry into the Arbitrator’s
on and live with the Arbitration Agreement and the arbitration proceedings
from March, 2018 – February, 2020. The petitioners decided to slip out of
the arbitration only in 2020 by filing four applications for challenging the
II.B. b. The petitioners’ participation was with full knowledge of the Supreme
judgment, on 24.3.2018.
10.9.2019.
11.5.2019.
15
29. The petitioners hence took an informed decision to continue with their
petitioners now seek to rely on these very decisions in 2023 to upend the
arbitration.
i) Minutes of the Meeting dated 27.5.2019 which recorded that both the
the petitioner stated that the affidavit may be treated as a reply to the
Arbitrator.
iii) The consent order passed by the Arbitrator based on the offer made by
the petitioner in its affidavit which was accepted by the respondent no.
1.
v) The petitioner’s application under section 16(3) of the Act (that the
vi) The petitioner replied to the application of the respondent and affirmed
11.5.2019.
vii) The petitioner’s reply to the application of the respondent no. 1 under
as above.
his advocate have no doubt and do not question the integrity of the
Arbitrator.
ix) The consent order before the Mediation Courts, Dwarka, Delhi in a case
proviso to section 12(5) of the Act. The statements are distinct from a
proceeds with the arbitration without stating his / her objection to the non-
cited hold that the term “express agreement” must be in the nature of
implied. One may also draw a parallel to section 7(2)(e) of the Act where
agreement being alleged by one party and not denied by the other amounts
III. Conclusions
section 12(5). The proviso to section 12(5) green-lights the parties to waive
all objections to ineligibility which fall under the Seventh Schedule. The
proviso does not carve out any exception akin to the non-waivable Red List
of the IBA Guidelines where certain conflicts remain outside the purview of
waiver by agreement. Since the Act gives the right to the parties to
agreement.
34. The proviso to section 12(5) which allows the parties to a dispute to
would hence take from and be confined to section 12(5). In other words, the
express agreement of the parties to get around the disqualification under the
Schedule. This is clear from the words “... waive the applicability of this sub-
section 14 must not only be assessed in light of the proviso to section 12(5)
but also with reference to the express agreement entered into between the
36. The proviso to section 12(5) must be read in sync with the momentum
of the 1996 Act. The proviso to section 12(5) is not a speed-breaker in the
process so that parties may resolve any lingering ineligibility issues and put
such matters at rest once and for all. The proviso is not to be treated as an
including section 12(5) read with the proviso are not fact-neutral. The
speed and ease of the arbitration procedure. The Act aims to aid parties who
are ready to flow with the momentum built into the statute and not parties
must be assessed only on the mandate of section 12(5) which is within the
parties. This is not the same and cannot be put on an equal footing as an
by any one or all of the conflicted relationships in the Seventh Schedule and
39. The named arbitrator being the CMD/MD of one of the parties to the
dispute and his nominee is but one degree of separation in the chain of
arbitrator where the test of independence starts with the arbitrator on the
is also contrary to section 12(4) of the Act. Under section 12(4), a party may
reasons of which he becomes aware after the appointment has been made.
lodging the challenge. The petitioners have also not disclosed any facts
2020. The petitioners were also aware of Perkins from 26th November, 2019
onwards. Section 12(4) also makes it clear that the reasons calling for the
21
challenge must be under section 12 read with the Fifth and Seventh
41. The decisions in TRF, Bharat Broadband, Perkins and Jaipur Zila
Parishad proceed on the basis of the named arbitrator also serving as the
cases are of a persona designata arbitrator where the persona designata was
(for emphasis). The Supreme Court therefore, held that the person
designated was per se ineligible under the Seventh Schedule read with
section 12(5) of the Act to act as an arbitrator. These cases hence involve a
person who chose himself to act as the arbitrator and hence was
and specifically under the Seventh Schedule. This person naturally could
not appoint a substitute in his or her place since that would be a mere
as the arbitrator. The logic is that a disqualified person cannot delegate his
arbitrator, the MD’s right to nominate is automatically wiped out – TRF and
Perkins.
22
43. In the present case, Clause 3 of the Arbitration Agreement provides for
designated Arbitrator and (b) the Investor / any of its Directors has not
claimed a right to act as the Arbitrator itself. The Investor has appointed a
between the facts of the present case and those in TRF, Bharat Broadband
amending Act of 2016. Bharat Broadband and Perkins considered the facts
disqualified to act as an arbitrator under the Seventh Schedule and not each
arbitration. Treating these situations as one and the same would amount to
conflation of two different and distinct scenarios which is not what the Act
mandates.
45. The reality of the arbitration model which is presently followed cannot
persons and include retired Supreme Court and High Court Judges who are
disclosure and conflicts which are specifically set out in the Fifth or the
23
46. The decision of the Supreme Court in Perkins Eastman Architects DPC
vs. HSCC (India) Limited; (2020) 20 SCC 760, involved a Dispute Resolution
that the CMD not only became ineligible to act as the arbitrator but was also
the Supreme Court as the Sole Arbitrator to decide the disputes arising out
47. The petitioner banks on the decision in Perkins to contend that any
that a person who has an interest in the outcome of the dispute cannot have
Agreement was of 22nd May, 2017 and the arbitrator was appointed on 30th
July, 2019. The petition was filed immediately thereafter and the decision in
24
Perkins did not involve any express written agreement under the proviso to
section 12(5). Further, the contract between the parties was entered into
after the amendment to the Act but before the decision in TRF (pronounced
on 3rd July, 2017) where the law was declared on section 12(5) of the Act.
Hence, the parties were not aware of the implications of TRF with regard to
arbitration as falling within the statutory bar of section 12(5) but without
reference to the Seventh Schedule. This would be clear from the reliance
placed by the Court on TRF which was specifically a case under section
12(5) read with the Seventh Schedule. Therefore, Perkins amplifies and
Schedule. Perkins also proceeded on the ratio of TRF namely whether the
nominate an arbitrator.
50. The absence of any issue with regard to an express written agreement
in facts. As discussed above, the proviso allows the parties to the dispute to
the Seventh Schedule. In the present case, the express and unequivocal
wipe out any objections to the appointment of the Sole Arbitrator. There was
present case. Therefore, Perkins is not at all a problem for the respondent
no. 1.
facts :.
This was also a case under section 11 of the 1996 Act and the contract
was entered into before the amendment brought into the 1996 Act with
referred to the sole arbitration of the CMD of the appellant and if the
writing under the proviso to section 12(5) and more important, the party
after the judgment in TRF. This would appear from paragraph 20 of the
Report which records that the Managing Director of the appellants was
not aware that the arbitrator could not appointed by the MD under
section 12(5) read with Seventh Schedule which only became clear after
the declaration of the law by the Supreme Court in TRF. The said
paragraph also notes that the moment the appellant came to know of the
the sole arbitrator for termination of his mandate. The contract in this
case was also entered into before the amendment of 23.10.2015 and the
his place.
Jaipur Zila Dugdh vs. Ajay Sales & Suppliers; AIR 2021 SC 4869 : The
section 11 of the Act. There was no express agreement under the proviso
Ellora Paper Mills vs. State of Madhya Pradesh; (2022) 3 SCC 1 : The
Govind Singh vs M/s Satya Group – Division Bench decision of the Delhi
of the Act. The appellant Govind Singh also raised an objection to the
appointment of the arbitrator at the very beginning and did not appear
parte and delivered the impugned award. The objection taken by the
MS Bridge Building Construction Co. Pvt. Ltd. vs. Bharat Heavy Electricals
Ltd. - Single Bench decision of the Delhi High Court in O.M.T (COMM)
87/ 2022 : The facts did not concern any express written agreement
under the proviso to section 12(5) and the Court clarified that non-
disclosure of the arbitrator under section 12(1) would not make the
Prodattur Cable TV Digi Services vs. Siti Cable Network Limited; (2020) 2
Arb LR 260 : The facts did not involve any express written agreement
under the proviso to section 12(5) and further the objection to the
arbitrator’s appointment was taken by the petitioner even before the first
case would be hit by Perkins. The Court also presumed that the
28
in the outcome of the dispute. The present case is different on facts since
Yashovardhan Sinha vs. Satyatej Vyapaar Pvt. Ltd.; A.P. No. 156 of 2022:
hold that the ineligibility of a sole arbitrator would continue with any
52. The above decisions disclose a common factual thread; namely of the
CMD, with the power to appoint another person to act as the arbitrator in
his/her place. All the decisions therefore proceeded on the basis that if the
designated person becomes ineligible under section 12(5) read with the
53. The other decisions cited are not being dealt with since they are on
54. The Arbitrator in the present case does not fall under any of the
12 therein.
learned counsel appearing for the petitioners. Entry 12 applies where the
management of the respondent no. 1. The Arbitrator also does not have any
Court.
56. The alleged ineligibility of the appointment of the Ld. Arbitrator was
who himself is a party to the dispute. The two situations are different in fact,
in logic as also in the decisions shown to the Court. The arbitration clause
in the present case belongs to the first category since the Arbitrator was
after the dispute had arisen between the parties and 7 months after the
Defence/affidavit filed by it. The petitioner sought for a fresh disclosure from
the Arbitrator despite being fully aware that the Arbitrator had made such
Court challenging the order of the High Court dated 4.8.2020 whereby the
petitioner did not secure this amount and filed the SLP. The petitioner
31
however withdrew the SLP after 2 years on 2.5.2022 without complying with
60. It is also significant to note that the petitioner raised an issue of bias
against the Arbitrator without waiting for the Arbitrator to decide on the
the Arbitrator) and without waiting for the respondent no. 1 to file their
61. The petitioner has obtained the benefit of the consent orders dated
prevailing at the time. The petitioner therefore persuaded the respondent no.
1 to alter its position and obtained consent orders while failing to comply
agreement, express and in writing, under the proviso to section 12(5). Any
Act of 1996.
63. Section 14 of the Act provides for two instances whereby the mandate
Arbitrator withdrawing from his office or the parties before the Court
undue delay. The controversy is whether the Arbitrator has become de jure
64. After discussing the import of section 12(5) read with the proviso, this
Court finds and accordingly holds that section 12(5) is not applicable to this
case since the alleged disqualification does not breach any one or more of
the mandate of the Arbitrator. The law does not support the petitioners’
case.