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Delhi High Court (“HC”) judgment marks the end of ‘in-house’ arbitrators, pursuant to the 2015 amendment of Section 12 of the Arbitration and Conciliation Act, 1996 (the “Act”)

Assignia-VIL JV (“Assignia”) Vs. Rail Vikas Nigam Ltd (“RV”)


2016 SCC Online Del 2567 dated April 29, 2016


Assignia and RV entered into an agreement for the construction of roadbed in the Lucknow Division of Northern Railways. Pursuant to Clause 20.3 of the agreement, in case of dispute between parties, the Arbitral Tribunal will consist of three arbitrators – first arbitrator to be a working or retired officer of the Indian Railways Accounts Service, second arbitrator to be a working or retired officer of any Engineering Service of Indian Railways, and the presiding arbitrator to be nominated by the first and second arbitrators together and someone who is a serving railway/ RVNL officer. However, when dispute actually arose relating to performance of the contract, RV failed to nominate an arbitrator which led Assignia to approach the HC under Section 11 of the Act.


The main issue before the HC was whether a new tribunal could be appointed by the Court given the existence of Clause 20.3 in the agreement. The HC also observed that a major change brought about by the Arbitration and Conciliation (Amendment) Act, 2015 (the “
amended Act”) is the inclusion of provision to ensure independence and impartiality of the arbitrators. Further, per the scheme of the Act, the mandate of an existing Arbitral Tribunal cannot be changed. Thus, in order to answer these questions, the HC analyzed the following:

  • Applicability of the amended Section 12 (deals with grounds for challenging the appointment of the arbitrator); and

  • Scope of the amended Section 12

As regards applicability of the amended Section 12 of the Act, the HC observed that Section 12(5) “mandates” that if the arbitrator and parties involved enjoy any of the relationships mentioned in its Seventh Schedule, then that arbitrator cannot be appointed. Of course, the provisions of the amended Act only apply to arbitrations that have commenced on or after October 23, 2015, which is the date of commencement of the amended Act. Further, Section 21 of the Act (relating to commencement of arbitral proceedings) clarifies that, unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent. Hence, the provisions of the amended Act squarely apply to the present petition with its commencement date being October 26, 2015.

Further, the idea of RV appointing its own employee pursuant to Clause 20.3 of the agreement was observed to be prima facie unacceptable as the fairness, impartiality and independence of such an arbitrator are questionable. Also, the amended Act distinctly disqualifies such an in-house appointment of arbitrators, hence, the HC found itself to be duty-bound to secure an ‘independent and impartial arbitrator’ under the amended Section 12. Accordingly, the HC, despite the existence of Clause 20.3, proceeded to appoint a three member arbitral tribunal to adjudicate the dispute between the parties.

 

Author: Zeric Dastur - Partner, J. Sagar Associates

The author can be reached at zerick@jsalaw.com

 

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