SC: Challenge to appointment of arbitrator to be raised in front of him first.

The Hon’ble Supreme Court today i.e. on 4th December 2018,  in the matter of SP Singla Constructions Pvt. Ltd. v. State of Himachal Pradesh and another held that an arbitrator’s order of termination of proceedings under Section 25(a) of the Arbitration Act, 1996 passed without issuing a notice warning to a claimant seeking adjournment, which makes clear that no adjournment would be granted under any circumstances, deserves to be set aside.

The Hon’ble Apex Court, among other things, also observed:

The fact that a named arbitrator is an employee of one of the parties is not ipso facto a ground to raise a presumption of bias or lack of independence on his part. (Para 11)

The arbitration agreements in government contracts providing that an employee of the department or a higher official unconnected with the work or the contract will be the arbitrator are neither void nor unenforceable. (Para 11)

Any challenge regarding the appointment of an arbitrator as per the terms of the agreement between the parties must be viewed in the context of the agreement between the parties. (Para 13)

Any challenge to the arbitrator appointed ought to have been raised before the arbitrator himself in the first instance. (Para 13)

Once, the appointment of an arbitrator is made at the instance of the government, the arbitration agreement could not have been invoked for the second time.(Para 19)

(Para 21) Section 25 of the Arbitration Act, 1996 deals with the situation where the parties commit default without showing sufficient cause and consequent termination of the proceedings. Section 25 provides three situations where on account of the default of a party, the arbitral tribunal shall terminate the proceedings which are as under:-

  1. (i)  Under Section 25(a) where the claimant fails to communicate his statement of claim in accordance with sub-section (1) of Section 23;
  2. (ii)  Under Section 25(b) continue the proceedings on the failure of the respondent to communicate his claim of defence in accordance with sub-section (1) of Section 23;
  3. (iii)  Under Section 25(c) continue the proceedings, and make the arbitral award on the evidence before it, in the event of a party failing to appear at an oral hearing or produce documentary evidence.

Section 25(a) provides that the Arbitral Tribunal shall terminate the proceedings where the claimants failed to communicate his claim in accordance with sub-section (1) of Section 23 of the Act.

When the parties have specifically agreed for appointment of a sole Arbitrator then it would not be right for any party to approach the High Court seeking appointment of an independent Arbitrator. (This inference has been drawn on the basis of Para 21)

If during the subsistence of an arbitration proceedings, a claimant who has failed to communicate his claim, seeks adjournment of proceedings, then an arbitrator before terminating the proceedings on account of such failure of claimant should issue a notice warning to the claimant which makes clear that no adjournment would be granted under any circumstances. In absence of such notice warning, such order of termination under Section 25(a) deserves to be set aside. (This inference has been drawn on the basis of Para 22)

Copy of the judgement: Judgement 04-Dec-2018

-Tushar Kaushik

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