SC: A former employee of a party to arbitration can be appointed as an arbitrator

The Hon’ble Supreme Court, on 3rdJanuary 2019, in the matter of The Government of Haryana PWD Haryana (B and R) Branch v. M/s. G.F. Toll Road Pvt. Ltd. & Ors. pronounced that under the Arbitration and Conciliation Act, 1996 a former employee of a party to arbitration is not disqualified to be appointed as an arbitrator, unless there are no justifiable doubts as to his independence and impartiality. An employee is disqualified to be appointed as an arbitrator only if he is an employee at the time when he is being appointed as an arbitrator. It was also held that mere allegations of bias are not a ground for removal of an arbitrator.

The Hon’ble Supreme Court also observed that:

Section 15(2) provides that a substitute arbitrator must be appointed according to the rules that are applicable for the appointment of the arbitrator being replaced. This would imply that the appointment of a substitute arbitrator must be according to the same procedure adopted in the original agreement at the initial stage. (Para 3.1)

The provisions of Section 15(2) require that when the mandate of an arbitrator terminates either by his withdrawal from office, or pursuant to an agreement by the parties, or for any reason, a substitute arbitrator shall be appointed according to the rules applicable to the appointment of the arbitrator being replaced. (Para 3.2)

Where a party has requested for 30 days’ time to appoint another nominee arbitrator, after objections being raised by the Indian Council of Arbitration (ICA) to the first nomination. The ICA can fill up the vacancy only if such party has no intention of filling up the vacancy. The ICA cannot usurp the jurisdiction over appointment of the nominee arbitrator on behalf of such party prior to the expiry of the 30 days’ period as requested. (This inference has been drawn on the basis of (Para 3.4)

The test to be applied for bias is whether the circumstances are such as would lead to a fair-minded and informed person to conclude that the arbitrator was infact biased. (Para 3.8)

The Arbitration and Conciliation Act, 1996 Act does not disqualify a former employee from acting as an arbitrator, provided that there are no justifiable doubts as to his independence and impartiality. (Para 3.9)

Entry 1 of the Fifth Schedule and the Seventh Schedule are identical. The Entry indicates that a person, who is related to a party as an employee, consultant, or an advisor, is disqualified to act as an arbitrator. 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. An arbitrator who has “any other” past or present “business relationship” with the party is also disqualified. The word “other” used in Entry 1, would indicate a relationship other than an employee, consultant or an advisor. The word “other” cannot be used to widen the scope of the entry to include past/former employees. (Para 3.10)

Mere allegations of bias are not a ground for removal of an arbitrator. (Para 3.11)

Copy of Judgement: Judgement 03-Jan-2019

-Tushar Kaushik

Leave a Reply

Your email address will not be published. Required fields are marked *