# l l S.C.R. 497 ARAVALI POWER COMPANY PVT. LTD v. MIS. ERA INFRA ENGINEERING LTD

- **Citation:** [2017] 11 S.C.R. 497
- **Court:** Supreme Court of India
- **Decided:** 2015-08-19
- **Case number:** Civil Appeal Nos. 12627-12628 of2017
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/l-l-s-c-r-497-aravali-power-company-pvt-ltd-v-mis-era-infra-engineering-ltd-31587
- **Pages:** 29

## Headnote

[2017] l l S.C.R. 497
ARAVALI POWER COMPANY PVT. LTD.
v.
MIS. ERA INFRA ENGINEERING LTD.
(Civil Appeal Nos. 12627-12628 of2017)
SEPTEMBER 12,2017
[ADARSH KUMAR GOEL AND UDAY UM ESH LALIT, JJ.[
Arbitration and Conciliation Act. )996 - ss.11(6), 12 and 13
- Appointment of employee of a parzv as arbitrator - Challenge to
- Contract between appel/ant-APCPL amt respondent-E!EL for
cons/ruction work of permanent township for a thermal power
project - Di.1putes arose between parties - Appel/am appointed its
Chief Executive Ojjicer (CEO) as the sole Arbitrator - Parties
appeared bejore Arbitrator - However. later Respondent challenged
the constitution ofarbitral tribunal - Objection rejected by Arbitrator
- Petition by respondent before High Cimrl uls.11(6) for appointing
<Ill independent arbitrator - High Court set aside the appointment
of the Arbitrator alrea<~V appointed by Appel/an/ - On appeal, held:
Mere ji1c/ that the arbitrator is a11 employee is nor ipso facto a ground
to raise any presumption of bias or partiality - In the i11slant case.
·the Arbitrator was nor the Engineer In-charge or the day-to-day lncharge of the work - The appointed Arbitrator was neither the
Dealing Authorizv in regard to the Contract nor was direct~v subordinate to the Ojjicer(I) whose decision was the sul~iect ma/11!1" of
dispute - There is nothing on record which could raise doubts about
the independence or impartiality of the Arbitrator - Thus,
appointment of the Arbitrator in question cannot be termed lo be
illegal or 11nenjiJ1·ceahle - F11rthe1; the respondent itself participated
in the arbitration proceedings and did not raise any challenge in
terms of the procedure prescribed under the Act - No cause of action
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for exercise of power u/s.11 (6) had arisen in the present case -
High Court erred in exercising jurisdiction in the present case and G
it ought not lo have interfered with the process and progress of
arbitration - Arbitration, in pursuance of the appointment of the
Arbitrator to proceed in accordance with law.
Arbitration and Conciliation Act, 1996 - s.12 - Grounds for
challenging tire appointment of arbitrator-Before 2015 Amendment
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SUPREME COURT REPORTS
[2017] l l S.C.R.
A . Act- Contract between appel/ant-APCPL and respondent-El EL -
Disputes arose between parties - As per the contract, appellant
appointed its Chief Executive Officer (CEO) as the sole Arbitrator
on 19.08.2015 i.e. before 2015 Amendment came into force -
Questioning the independence of the Arbitrator already appointed,
B petition ji/ed by respondent before High Court for appointing an
independent arbitrator - Held: s.12(1) as it stood before the 2015
Amendment, obliged the person approached in connection with
possible appointment as an arbitrator. to disclose in writing any
circwn.!lances likely to give rise to justifiable doubts as to his
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independence or impartiality - It is not the case of the respondent
that there had not been any fair and correct disclosure - Thus, the
fi1ct that the already appointed arbitrator happens to be an employee
of one of the parties to the arbitration agreement does not by itse!t:
bejiJre the Amendment Act ca111e into force. render such appointment
invalid and unenforceable - Further, in pre-amendme/l/ cases, the
terms of the agreement 011gh1 to be adhered to and/or given effect
to as c/ose(1' as possible - Arbitration and Conciliation( Amendment}
Act, 2015.
A1-hitration and Conciliation Act, 1996 - s.l/(6) - Scheme of
appointment of arbitrators - Exercise of power under - Pre and
E post 2015 amendment - Princ1/J/es enunciated - Arbitration and
Conciliation(Amendment) Act, 2015.
Disposing of the appeals, the Court
HELD: l.l In the present case, the contract provided for
arbitration by the Project In-charge of the concerned Project,
F . and in case such Project In-charge were to be unable or unwilling
to act, arbitration by any person appointed by the Chairman and
Managing Director. It further provided inter a/ia t

## Text

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[2017] l l S.C.R. 497
ARAVALI POWER COMPANY PVT. LTD.
v.
MIS. ERA INFRA ENGINEERING LTD.
(Civil Appeal Nos. 12627-12628 of2017)
SEPTEMBER 12,2017
[ADARSH KUMAR GOEL AND UDAY UM ESH LALIT, JJ.[
Arbitration and Conciliation Act. )996 - ss.11(6), 12 and 13
- Appointment of employee of a parzv as arbitrator - Challenge to
- Contract between appel/ant-APCPL amt respondent-E!EL for
cons/ruction work of permanent township for a thermal power
project - Di.1putes arose between parties - Appel/am appointed its
Chief Executive Ojjicer (CEO) as the sole Arbitrator - Parties
appeared bejore Arbitrator - However. later Respondent challenged
the constitution ofarbitral tribunal - Objection rejected by Arbitrator
- Petition by respondent before High Cimrl uls.11(6) for appointing
<Ill independent arbitrator - High Court set aside the appointment
of the Arbitrator alrea<~V appointed by Appel/an/ - On appeal, held:
Mere ji1c/ that the arbitrator is a11 employee is nor ipso facto a ground
to raise any presumption of bias or partiality - In the i11slant case.
·the Arbitrator was nor the Engineer In-charge or the day-to-day lncharge of the work - The appointed Arbitrator was neither the
Dealing Authorizv in regard to the Contract nor was direct~v subordinate to the Ojjicer(I) whose decision was the sul~iect ma/11!1" of
dispute - There is nothing on record which could raise doubts about
the independence or impartiality of the Arbitrator - Thus,
appointment of the Arbitrator in question cannot be termed lo be
illegal or 11nenjiJ1·ceahle - F11rthe1; the respondent itself participated
in the arbitration proceedings and did not raise any challenge in
terms of the procedure prescribed under the Act - No cause of action
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for exercise of power u/s.11 (6) had arisen in the present case -
High Court erred in exercising jurisdiction in the present case and G
it ought not lo have interfered with the process and progress of
arbitration - Arbitration, in pursuance of the appointment of the
Arbitrator to proceed in accordance with law.
Arbitration and Conciliation Act, 1996 - s.12 - Grounds for
challenging tire appointment of arbitrator-Before 2015 Amendment
497
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498
SUPREME COURT REPORTS
[2017] l l S.C.R.
A . Act- Contract between appel/ant-APCPL and respondent-El EL -
Disputes arose between parties - As per the contract, appellant
appointed its Chief Executive Officer (CEO) as the sole Arbitrator
on 19.08.2015 i.e. before 2015 Amendment came into force -
Questioning the independence of the Arbitrator already appointed,
B petition ji/ed by respondent before High Court for appointing an
independent arbitrator - Held: s.12(1) as it stood before the 2015
Amendment, obliged the person approached in connection with
possible appointment as an arbitrator. to disclose in writing any
circwn.!lances likely to give rise to justifiable doubts as to his
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independence or impartiality - It is not the case of the respondent
that there had not been any fair and correct disclosure - Thus, the
fi1ct that the already appointed arbitrator happens to be an employee
of one of the parties to the arbitration agreement does not by itse!t:
bejiJre the Amendment Act ca111e into force. render such appointment
invalid and unenforceable - Further, in pre-amendme/l/ cases, the
terms of the agreement 011gh1 to be adhered to and/or given effect
to as c/ose(1' as possible - Arbitration and Conciliation( Amendment}
Act, 2015.
A1-hitration and Conciliation Act, 1996 - s.l/(6) - Scheme of
appointment of arbitrators - Exercise of power under - Pre and
E post 2015 amendment - Princ1/J/es enunciated - Arbitration and
Conciliation(Amendment) Act, 2015.
Disposing of the appeals, the Court
HELD: l.l In the present case, the contract provided for
arbitration by the Project In-charge of the concerned Project,
F . and in case such Project In-charge were to be unable or unwilling
to act, arbitration by any person appointed by the Chairman and
Managing Director. It further provided inter a/ia that there would
be no objection even if the Arbitrator had dealt with the matters
to which the contract related in the course of his duties or had
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expressed views on all or any of the matters in dispute or
difference. The fact that the named arbitrator happens to be an
employee of one of the parties to the Arbitration Agreement has
not by itself, before the Arbitration and Conciliation(Amendment)
Act, 2015 came into force, rendered such appointment invalid
and unenforceable. In pre-amendment cases, the law laid down
in Northern Raibvtry Atl111i11istratio11, must be applied, in that the
ARAVALI POWER COMPANY PVT. LTD. v. M/S. ERA INFRA
499
ENGINEERING LTD.
terms of the agreement ought to be adhered to and/or given effect
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to as closely as possible. [Paras 16, 17 and 21][512-E-G; 523-E)
Northern Railway Admi11istratio11. llfinistry of Railway,
New Delhi v. Patel Engineering Company Ltd. (2008)
10 SCC 240 : (2008] 12 SCR 216 - held applicable.
. 1.2 Section 12(1), Arbitration and Conciliation Act, 1996 as
it then stood before the 2015 Amendment Act came into force,
obliged the person approached in connection with possible
appointment as an arbitrator, to disclose in writing any
circumstances likely to give rise to justifiable doubts as to his
independence or impartiality. In the present case, the Arbitrator
undoubtedly is an employee of the Appellant-Aravali Power
Company Pvt. Ltd., but so long as there is no justifiable
apprehension about his independence or impartiality, the
appointment could not be rendered invalid and unenforceable.
Mere fact that the arbitrator is an employee is not ipso facto a
ground to raise any presumption of bias or partiality. It is not the
case that there had not been any fair and correct disclosure. All
that the Respondent-Mis. Era Infra Engineering Ltd. alleged in
its petition \Vas, " ..... he has himself in his official capacity in the
Respondent-Company dealt with contracts of nature similar to
the contract works in question .... ". The Respondent, while relying
on the provisions of the Amendment Act had also submitted, " ....
allegedly appointed individual is the Chief Executive Officer of
the Respondent herein, who on account of such position also has
the controlling influence over the Respondent-Company". Al the
same time, the High Court observed that the Arbitrator was not
the Engineer In-charge or the day-to-day In-charge of the work
and as a matter of fact, the Engineer In"charge was AGM (CCDTownship) who had a .team of other Engineers working under him
and that AG!H (CCD~Township) rc1iortcd to AGi\l (i\lE-CCD)
who in turn reported to CEO (APCPL) i.e. the Arbitrator. The
facts on record and the hierarchy do not show that the Arbitrator
in the Jlresent mailer was either the Dealing Authority in regard
to the Contract or was directly sub-ordinate to the Officer(s)
whose decision is the subject matter of diSJIUte. In fact, the
decision, which could be subject matter of dispute, was that of
his subordinates. He may have dealt with contracts of nature
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SUPREME COURT REPORTS
(2017] 11 S.C.R.
similar to the contract works in question but that by itself docs
not render the appointment invalid. Since there is nothing on
record which could raise justifiable doubts about the independence
or impartiality of the named Arbitrator, the appointment of the
Arbitrator could not in any way be termed to be illegal or
unenforceable. [Para 191(514-D-H; 515-A-C)
Indian Oil Corporation Ltd. and Others v. Raja
Transport Private ltd. (2009) 8 SCC 520 : [2009! 13
SCR 510 - relied on.
1.3 The principles which emerge arc:-
A. In cases governed by 1996 Act us it stood before the
Amendment Act came into force:-
(i) The fact that the named arbitrator is an employee of
one of the parties is not ipso ji1cto a ground to raise a presumption
of bias or partiality or lack of independence on his part. ThHe
can however be a justifiable apprehension about the independence
or impartiality of an employee arbitrator, if such person was the
controlling or dealing authority in regard to the subject contract
or if he is a direct subordinate to the officer whose decision is the
subject-matter of the dispute.
(ii) Unless the cause of action for invoking jurisdiction under
Clauses (a), (b) or (c) of sub-section (6) of Section 11 of 1996 Act
arises, there is no question of the Chief Justice or his designate
exercising power under sub-section (6) of Section 11.
(iii) The Chief Justice or his designate while exercising
power under sub-section (6) of Section 11 shall endeavour to give
effect to the appointment procedure prescribed in the arbitration
clause.
(iv) While exercising such power under sub section (6) of
Section 11, if circumstances exist, giving rise to justifiable doubts
as to the independence and impartiality of the person nominated,
or if other circumstances warrant appointment of an independent
arbitrator by ignoring the procedure prescribed, the Chief Justice
or his designate may, for reasons to be recorded ignore the
designated arbitrator and appoint someone else.
ARAVALI POVVER COMPANY PVT. LTD. v. MIS. ERA INFRA
501
ENGINEERING LTD.
B. In cases governed by 1996 Act after the Amendment A
Act has come into force:-
If the arbitration ·c1ause finds foul with the amended
provisions, the appointment of the Arbitrator even if apparently
in conformity with the arbitration clause in the agreement, would
be illegal and thus the Court would be within its powers to appoint
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such arbitrator(s) as may be permissible. (Para 22)(523-G-H; 524A-F)
1.4 The procedure as laid down in unamended Section 12
mandated disclosure of circumstances likely to give rise to
justifiable doubts as to independence and impartiality of the c
:irbilrator. It is not the case of the Respomlfnt that the pro,·isions
of Section 12 in unamended form stood violated on any count. In
any case the provision contemplated clear and precise procedure
under which the arbitrator could be challenged and the objections
in that behalf under Section 13 could be raised within prescribed
time and in accordance with the procedure detailed therein. The
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record shows that no such challenge was raised within the time
and in terms of the procedure prescribed. As a matter of fact, the
Respondent had participated in the arbitration and by its
communication dated 04.12.2015 had sought extension of time
to lite its statement of claim. In the circumstances, the High Court
was clearly in error in exercising jurisdiction in the present case
·and it ought not to have interfered with the process and progress
of arbitration. The arbitration, in pursuance of the appointment
of the Arbitrator on 19.08.2015, shall proceed in accordance with
law. [Paras 23, 24][524-H; 525-A-CI
l'oestalpinc Schienen GMB/f v. Delhi Metro Rail
Corporation Limited (2017) 4 SCC 665 - distinguished.
ACE Pipeline Contracts (P) Ltd. '" Bharat Petmleum
Corpn. Ltd. (2007) 5 SCC 304 : (2007] 4 SCR 777;
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Union of India v. Bharat Ballery Manufacturing Co.
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(P) Ltd. (2007) 7 SCC 684 : (2007] 8 SCR 993; Union
of India V. Singh Builders Syndicate (2009) 4 sec 523 :
(2009] 3 SCR 563: Dene/ (Proprietary) Limited "·
Bharat Electronics Limited and Another (2010) 6 SCC
394 : [20 IO] 6 SCR 784: Datar Switchgears Ltd. v. Tata
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502
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[2017] I I S.C.R.
Finance Ltd. (2000) 8 SCC 151; Bhupinder Singh
Bindra v. Union of India (1995) 5 SCC 329 : (1995] 2
Suppl. SCR 417; Dene/ (Proprietary) Limited v.
Ministry a/Defence (2012) 2 SCC 759 : (2012] 2 SCR
897: Union of India and Others v. VIiar Pradesh State
Bridge Corporation Limited (2015) 2 SCC 52; Tripple
Engg. Works v. North Eastern Railway & Ors. (2014) 9
SCC 288 : (2014] 6 SCR 1143 - referred to.
Case Law Reference
[2009[ 13 SCR 510
relied on
Para 20
(2008] 12 SCR 216
held applicable
Para 20
[2007) 4 SCR 777
referred to
Para 20
(2007] 8 SCR 993
referred to
Para 20
(2009) 3 SCR 563
referred to
Para 20
[2010) 6 SCR 784
referred to
Para 20
c20ooi s sec 151
referred to
Para 20
[1995[ 2 Suppl. SCR 417
referred to
Para 20
(2012] 2 SCR 897
referred to
Para 20
c201s) 2 sec 52
referred to
Para 20
[2014) 6 SCR 1143
referred to
Para 20
(2011i 4 sec 665
distinguished
Para 20
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1262712628 of2017.
From the Judgment and Order dated 29.07.2016 of the High Court
of Delhi at New Delhi in 0. M. P. (T) (Comm.) No. 13/2016 and Arb. P.
No.136of2016
WITH
Civil Appeal Nos. 12629-12630of2017.
Vikas Singh, Sr. Adv., Bharat Sangal, Ms. Vcrnika Tomar, Ms.
Dipika Kali a, Ms. Vidushi Garg, Manoj K. Singh, Prem Prakash, Advs.
for the appearing pal1ics.
ARAVALI POWER COMPANY PVT. LTD. v. M/S. ERA INFRA
ENGINEERING LTD.
The Judgment of the Court was delivered by
UDAY UMESf{ LALIT, J. J. Leave granted. These appeals
challenge the conunon judgment and order dated 29.07.2016 passed by
the High Court of Delhi at New Delhi in O.M.P. (T) (Comm.) No.13/
2016 and Arbitration Petition No.136/2016.
2. Construction work of permanent township for Indira Gandhi
Super Thermal Power Project at Jhajjar, Haryana was awarded to the
Respondent- Mis Era Infra Engineering Ltd. on 20.05.2009 and contract
dated 17 .11.2009 signed thereafter broadly consisted of General
Conditions of Contract (GCC) and Special Conditions of Contract (SCC).
Clause 56 of the GCC stipulated arbitration between the parties in
fol)owing terms:-
"56. ARBITRATION:-
Except where otherwise provided for in the contract all questions
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and disputes relating to the meaning of the specifications, designs,
drawings and instructions herein before mentioned and as to the
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quality of workmanship or materials used on the work or as to
any other questions, claim, rights, matter or thing whatsoever in
any way arising out of or relating to the contract. design, drawing,
specifications, estimates, instructions, orders or these conditions
of othc1wise concerning the works, or the executions or failures
to execute the same whether arising during the progress of the
work or after the completion or abandonment thereof shall be
referred to the Sole Arbitration of the Project In-charge of the
Project concerned of the owner, and if the Project In-charge is
unable or unwilling to act, to the sole arbitration of so111e other
persons ;1ppointcd by the Chairman and Managing Director, NTPC
limited (Formerly National Thermal Po)l'er Corporation Ltd)
willing to act as such Arbitrator. There will be no objections, if
the Arbitrator so appointed is an employee of NTPC Limited
(Formerly National Thermal Power Corporation Ltd), and that he
had to deal with the matters to which the contract relates and that
in the course of his duties as such he had expressed views on all
or any of the matters in disputes or difference. The Arbitrator to
whom the matter is originally referred being transferred or vacating
his office or being unable to act for any reason as aforesaid at the
time of such transfer, vacations of office or inability to act,
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SUPREME COURT REPORTS
l20l 7] l 1 S.C.R.
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Chairman and Managing Directors, NTPC limited (Formerly
National Thermal Power Corporation Ltd.), shall appoint another
person to act as Arbitrator in accordance with the terms of the
contract. ..... ··
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3. According to the Appcllant-Aravali Power Company Pvt. Ltd.,
scheduled date of completion of work was l 9.05.20 I I hut the progress
of work was quite slow which compelled the Appellant to cancel certain
remaining works by its letters dated I 8.07.2014, 24. l 0.2014, 30.06.2015
and 08.07.2015. By its letter dated 29.07.2015 the Respondent alleged
that the delays in the project were not attributable to the Respondent
and after setting out certain grievances, the letter thereafter sought to
invoke arbitration submitting further that arbitration be through a retired
Judge of the High Court, the relevant portion of the letter bcing:-
"ln view of the above circumstances and inaction of APCPL
towards settlement of our claims/payments, we hereby invoke
Arbitration Clause of the Contract Agreement request your good
self to appoint Arbitrator for settlement of our claims according to
Clause 56 of GCC of the Contract Agreement.
However, we want to draw your attention to the legal point that
once the order of part caned la ti on has been passed at the Highest
Level of the OwnerfEmploycr, hence, any forum for resolution of
dispute constituted by the said authority & particularly its
subordinate is of no legal consequence. It is a well settled
proposition of law that nobody can be judge in its own cause.
Therefore. in light of the aforesaid settled position of law, we
seek an independent arbitration, through a rdircd Hon'ble Judge
of the Hon'ble High Court so as to seek vindication of ow· grievance
as mentioned in foregoing paras. Since the matter is utmost
important, we hereby request that a panel of independent Arbitrators
may kindly be made available to us so that we can choose from
the panel. We would also be agreeable to the constitution of an
Arbitral Tribunal comprising of nominee of your company; our
nominee and both the nominee arbitrators appointing the Presiding/
Umpire Arbitrator. We request that an early action in this regard
may kindly be taken, in accordance with law."
4. In response, while refuting the allegations in the letter under
reply, the Appellant proceeded to appoint its Chief Executive Officer as
ARAVALI POWER COMPANY PVT. LTD. v. MIS. ERA INFRA
505
ENGINEERING LTD. [UDAY UMESH LAUT, J.]
the sole Arbitrator on 19.08.2015 and intimated the respondent on the
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same day in following terms:
"Please note that in terms of the Arbitration Clause 56 of the
GCC there is no provision for selection by you of Arbitrator from
any panel of Arbitrators to be offered by us. There is also no
provision for formation of an Arbitral Tribunal as suggested by
you. Clause 56 of the GCC envisaged the appointment of the
designated officers as Arbitrator and accordingly the Chief
Executives Officer APCPL on your request, has been designated
as the Sole Arbitrator. The Learned Arbitrator shall inform you
of the Arbitral proceedings in time."
By further communication dated 26.09.2015 the Appellant
reiterated its stand taken in letter dated 19.08.2015.
5. In the meanwhile, the Arbitrator so appointed fixed the first
hearing in arbitration on 07. l 0.2015. The parties appeared on 07.10.2015
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and the proceedings show that the hearing was fixed on 09.04.2016 by
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which time there was to be completion of filing of statement ofresponse
to counter claim etc. The proceedings do not show any objection having
been raised by the Respondent regarding continuation of the arbitration
proceedings. On 04.12.2015 a letter was addressed by the Respondent
to the Arbitrator seeking extension of time to file its statement of claim.
It was stated, inter alia:
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"In the last-hearing held on 07.10.2015 the Claimant was given
60 days' time to file its Statement of Claim. In this connection it
is to state that we need to collect some more data and files from
our other offices to make the Statement of Claim. For that purpose,
we need about one month fu11her time to submit our Statement of F
Claim.
It is therefore, requested that the Ld. Sole Arbitrator may kindly
grant one month further time to the Claimant to file its Statement
of Claim."
According to the record .. the Arbitrator granted one month's time,
as prayed for.
6. On 01.01.2016, the Arbitration and Conciliation (Amendment)
Act, 20 15 (hereinafter referred to as "the Amendment Act") was
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SUPREMI::' COURT REPORTS
(2017J 11 S.C.R.
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gazetted and according to Section 1(2), the Amendment Act was deemed
to have come into force on 23'' October, 2015.
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7. For the first time on 12.01.2016, the Respondent sought to
challenge the Arbitrator and raised objection regarding constitution of
the arbitral tribunal as under:
"In reference to the above referred communications addre>sed
by us, we hereby state that the constitution of the present arbitral
tribunal is wholly invalid/void & against the settled principles of
law, and on account of which Era Infra Engineering Ltd. is seeking
appropriate legal remedies by approaching the Hon'ble High Court
for appointment of an Independent Arbitral Tribunal. Accordingly,
we hereby request your good self to kindly restrain yourself from
assuming reference and seeking to proceed with the present alleged
proceedings, till the final outcome of the above referred legal
proceedings, sought to be immediately & urgently filcd/prefcn-ed
by Era lnfrn Engineering Ltd."
8. The objection was rejected by the Arbitrator on 22.01.2016 on
the ground that the Respondent had participated in the arbitral proceedings
on 07.10.2015 without raising any protest. The Respondent was then
intimated to attend proceedings in arbitration scheduled to be held on
16.02.2016. The Respondent however, approached the High Court of
Delhi by filing petition under Section 14 of the Arbitration and Conciliation
Act, l 996 (hereinafter referred to as ·• 1 996 Act"), registered as
OMP(T)(Comm.) No.13/2016, seeking termination of the mandate of
the Arbitrator. Grounds I, IV, VI, VII and VJll raised in the petition
were:-
It is submitted that it is a settled principle oflaw that nobody
can be a judge in his own cause. In other words, a party to the
Agreement cannot be an arbiter in his own cause. It is submitted
that interest of justice and equity require that where a party to the
contract disputes the committing of any breach of the condition,
the adjudication should be by an independent person or body and
not by the other party to .the contract.
IV That without prejudice to the above, it would also be relevant
to mention herein that the allegedly appointed Arbitrator namely,
Shri S.K. Sinha, would also be otherwise unable to perform the
functions of an independent Arbitrator, in as much as, he has
ARAVALI POWER COMPANY PVT. LTD. v. MIS. ERA INFRA
507
ENGil;<EERING LTD. [UDAY UMESH LAUT, J.)
himself, in his official capacity in the respondent-company, dealt
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with contracts of nature similar to the contract works in question
herein (including the present contract works), on behalf of the
respondent-company.
VI
That it would also be worth mentioning that the Hon'ble
Courts have consistently held and observed that the policy of the
GovernmenVStatutory Authorities/Pubic Sector undertakings. to
provide/appoint for arbitration by an Employee Arbitrator is a
vexed problem which requires reconsideration, which is more so
in deference to the specific provisions of the new Act reiterating
the need for an independent and impartial Arbitrator.
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VII That in furtherance of the aforementioned spirit as reiterated
by the Hon'ble Courts, the Act has also been suitably amended
by the Legislature, whereby, inter alia, it has been expressly
provided thatanArbitratorwho is an Employee, Manager, Director
or part of the Management or has a similar controlling influence
in one of the parties to the arbitration, is a valid ground giving rise
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to justifiable doubts as to the independence or impartiality of an
Arbitrator. Furthermore, it has also been provided that an
Arbitrator's previous involvement in the case/subject matter would
also be a valid ground giving rise to justifiable doubts as to the
independence or impartiality of an Arbitrator.
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VIII That in the present case, as brought out above, the alleged
Arbitrator so appointed by the respondent herein is an employee
of the respondent herein itself. In fact, the allegedly appointed
individual is the Chief Executive Officer (CEO) of the respondent
herein, who on account of such position also has a controlling
influence over the respondent-company. against whom the
petitioner herein seeks to assert its claims. In such circwnstances,
the said allegedly appointed arbitrator would both in law and fact
be unable to perform his functions as an Arbitrator in an
independent or impartial manner.
9. On the same day, another petition being Arbitration Petition
No. l 36 of 2016 was filed by the Respondent under Section l I (6) of
1996 Act for appointing an independent arbitrator for adjudicating disputes
between the parties. The cause of action, as pleaded, in the said petition
was:~
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"That the cause of action for filing the present petition arose on
the various dates when requests were made by the petitioner to
the respondent for issuance of long outstanding payments. The
cause ofaction fortherarose on 29.07.2015 when arbitration was
invoked by the petitioner. The cause ofaction further arose, when
the respondent erroneously and illegally rejected the petitioner's
request for appointment of an independent Arbitral Tribunal. which
cause ofaction is still subsisting and continuing since the respondent
has failed to make the outstanding payment and to >O appoint an
independent Arbitral Tribunal."
10. On 01.03.2016 the High Court issued notice and stayed further
proceedings in arbitration. The matter was contested by the Appellant
submitting, inter alia. that the petition under Section 14of1996 Act was
not maintainable; that the Arbitrator was appointed strictly in terms of
Clause 56 of the GCC; and that though the Respondent was informed
about appointment of the Arbitrator on 19.08.2015, no steps to challenge
the appointment were undertaken within the time specified and in the
manner prescr[bed under 1996 Act.
II. The High Com1 by its judgment and order under Appeal set
aside the appointment of the Arbitrator and directed the Appellant to
suggest names of three- panel Arbitrators from different departments to
the Respondent who could thcrcatier choose any one of them to be the
Arbitrator in the matter. It was directed that in the event of failure by
the Appellant, the Respondent would be at liberty to revive the petitions,
in which case the Court would appoint a sole Arbitrator from the list
maintained by Delhi International Arbitration Centre. It was also observed
that the Arbitrntor was CEO of the Appellant and was previously involved
in cases/contract works similar to the one involved in the present case
and it could not be disputed that the decisions of part cancellation were
taken at the highest level of the Appellant. [n the circumstances, the
High Cou11 found that the apprehension entertained by the Respondent
was reasonable and not a vague or general objection. The observations
of the High Court werc:-
" 13. The Arbitrator, though the CEO of the respondent-Company
and the Project In-charge of the Indira Gandhi Super Thermal
Power Project, P.O. Jharii, Distt. Jhajjar, Haryana, was not the
Engineer Jn-charge or the day-to-day In-charge of the work,
which was to be performed by the petitioner under the contract in
ARAVALI POWER COMPANY PVT. LTD. v. MIS. ERA INFRA
ENGINEERING LTD. [UDAY UMESH LALIT, J.j
question. In fact, the Engineer In-charge for this project is AGM
(CCD-Township) who is supported by Group of Engineers (Dy.
Managers, Managers & Sr. Managers) working under him for
execution of the work. Further, the AGM (CCD-Township)
reports to AGM (ME/CCD) who in turn reports to CEO
(APCPL).
37. lt is common parlance oft-quoted aphorism "Not only must
Justice be done; it must also be seen to be done." The reason is
that rules are moral constructs that are meant to serve higher value.
The amendment of 2015 emphasize that the existence of any
relationship or interest of any kind is likely to give rise to justifiable
doubts as to his neutrality is to be avoided or any employee,
manager, director, or has past or present business or has a
controlling influence, relationship with a party to the dispute should
not be appointed as an Arbitrator. Similarly, it is rightly mandated
in the Fifth Schedule of the Amended Act. 2015 (3 of 2016) that
if the Arbitrator has within the past three years been appointed on
two or more occasions by one of the parties and the Arbitrator
has served within the three years in another arbitration on a
related issue involving one of the parties, his appointment would
give rise to justifiable doubts as to the independence or impartiality
of nrbitrators. No doubt, the invocation was about three months
prior to amendment. But the Court has to keep in mind about the
purpose and scope of the Act.
3 8. In the present case, no doubt, the invocation was on the basis
of un-amended Act but still wider Section 12 of the Act would give
the similar indication. The sole Arbitrator appointed by the
respondent admittedly is CEO and Executive of the respondentCompany who is also from the same office/department. In order
to maintain the neutrality. or to avoid any donbt in the mind of the
petitioner and the reasons given in the petition, it would be
appropriate that independent sole Arbitrator should be appointed
as ultimately neutral person has merely to decide the dispute
between the parties. Even, the object and scope of the Act says
so, that an arbitration procedure should be fair and unbias. Thus,
the appointment of Mr. S.K. Sinha, CEO of the respondent
Company is terminated and once the Arbitrator's appointment is
terminated, the Court can consider the prayer of the petitioner."
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12. The decision of the High Court is challenged by the Appellant
and Mr. Vikas Singh, learned Senior Advocate submitted, inter a/ia,
that as the appointment of the Arbitrator was completely in tune with
Clause 56 of the GCC there was no occasion for the High Court to
exercise any power or jurisdiction and that 1996 Act contemplated clear
and definite procedure for challenging the Arbitrator, and even if such
challenge were to fail the remedy under Section 13 was specific and of
different nature. In either case, according to him, the Respondent could
not have approached the High Court and both the petitions ought not to
have been entertained.
13. To the extent the High Court had directed the Appellant to
submit three names from its panel of Arbitrators from which list the
Respondent was to select the sole Arbitrator. the Respondent challenged
that part of the Judgment by filing SLP (Civil) Nos.503-504 of 2017.
Appearing for the Respondent, Mr. Manoj K. Singh, learned Advocate
relied upon some decisions of this Court and submitted that an Officer
who had either dealt with the project or was direct! y subordinate to the
Authority whose decision was the subject matter of dispute could not be
an arbitrator in the matter.
14. At the outset, it must be stated that the invocation ofarbit.ration
in the present case was on 29.07.2015, the Arbitrator was appointed on
19.08.2015 and th~ parties appeared before the Arbitratoron 07.10.2015,
well before 23.10.2015 i.e. the date on which the Amendment Act was
deemed to have come into force. The statutory provisions that would
therefore govern the present controversy arc those that were in force
before the Amendment Act came into effect. We must mention here
that both the parties have addressed their submissions on this premise.
15. Before we consider the present controversy. we may quote,
for facility. Sections 12, 13 and 14 of 1996 Act as they stood before the
Amendment Act came into force:-
"12. Grounds for challenge.-
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(I) When a person is approached in connection with his possible
appointment as an arbitrator, he shall disclose in writing any
circumstances likely to give rise to justifiable doubts as to his
independence or impartiality.
(2) An arbitrator, from the time of his appointment and throughout
H
ARAVALI POWER COMPANY PVT. LTD. v. MIS. ERA INFRA
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ENGINEERING LTD. [UDAYUMESH LAUT, J.]
the arbitral proceedings, shall, without delay, disclose to the parties
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in writing any circumstances referred to in sub-section (I) unless
they have already been informed of them by him.
(3) An arbitrator may be challenged only if-
( a) circumstances exist that give rise to justifiable doubts as to
his independence or impartiality, or
(b) he does not possess the qualifications agreed to by the
parties.
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( 4) A party may challenge an arbitrator appointed by him, or in
whose appointment he has participated, only for reasons of which
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he becomes aware after the appointment has been made.
13. Challenge procedure.-
(!) Subject to sub-section (4), the parties are free to agree on a
procedure for challenging an arbitrator.
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(2) Failing any agreement referred to in sub-section(!), a party
who intends to challenge an arbitrator shall, within fifteen days
after becoming aware of the constitution of the arbitral tribunal or
after becoming aware of any circumstances referred to in subsection (3) of section 12, send a written statement of the reasons
for the challenge to the arbitral tribunal.
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(3) Unless the arbitrator challenged under sub-section (2)
withdraws from his otlice or the other party agrees to the challenge,
the arbitral tribunal shall decide on the challenge.
( 4) If a challenge under any procedure agreed upon by the parties
or under .the procedure under sub-section (2) is not succcssfμl,
the arbitral tribunal shall continue the arbitral proceedings and
make an arbitral award.
(5) Where an arbitral award is made under sub-section (4), the
party challenging the arbitrator may make an application for setting
aside such an arbitral award in accordance with section 34.
(6) Where an arbitra.l award is set aside on an application made
under sub-section (5), the Court may decide as to whether the
arbitrator who is challenged is entitled to any fees.
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( I) The mandate of an arbitrator shall terminate if-
( a) he becomes de jure or de facto unable to perform his
functions or for other reasons fails to act without undue delay;
and
(b) he withdraws from his office or the parties agree to the
termination of his mandate.
(2) If a controversy remains concerning any of the grounds referred
to in clause (a) of sub-section (I), a party may, unless otherwise
agreed by the parties, apply to the Court to decide on the termination
of the mandate.
(3) If, under this section or sub-section (3) of section 13. an
arbitrator withdraws from his office or a party agrees to the
termination of the mandate of an arbitrator, it shall not imply
acceptance of the validity ofany ground referred to in this section
or sub-section (3) of section 12."
16. In the present case Clause 56 of the GCC provides for
arbitration by the Project In-charge of the concerned Project, and in
case such Project In-charge were to be unable or unwilling to act.
arbitration by any person appointed by the Chairman and Managing
Director. It further provides illler alia that there would be no objection
even if the Arbitrator had dealt with the matters to which the contract
related in the course of his duties or had expressed views on all or any of
the matters in dispute or difference.
17. The fact that the named arbitrator happens to be an employee
of one of the parties to the Arbitration Agreement has not by itself,
before the Amendment Act came into force, rendered such appointment
invalid and unenforceable. The observations of this Court in b11Jiu11 Oil
Corporation Ltd. and Others v. Raju Transport Private Ltd. 1 in
paragraphs 28, 30, 31 and 32 arc quite clear. Said paragraphs were as
under:
"28. It is contended by the respondent that in view of the emphasis
on the independence and impartiality of an arbitrator in the new
Act and having regard to the basic principle ofnatural justice that
no man should be judge in his own cause, any arbitration agreement
• (2009) s sec s20
ARAVALI POWER COMPANY PVT. LTD. v. MIS. ERA INFRA
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to the extent it nominates an officer of one of the parties as the
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arbitrator, would be invalid and unenforceable.
30. We find no bar under the new Act. for an arbitration agreement
providing for an employee of a Government/statutory corporation/
public sector undertaking (which is a party to the contract), acting
as an arbitrator. Section 11(8) of the Act requires the Chief Justice
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or his designate, in appointing an arbitrator, to have due regard to:
"I I. (8)(a) any qualifications required of the arbitrator by the
agreement of the parties; and
(b) other considerations as are likely to secure the appointment
of an independent and impartial arbitrator."
31. Section 12(1) requires an arbitrator, when approached in
connection with his possible appointment, to disclose in writing
any circumstances likely to give rise to justifiable doubts as to his
independence or impartiality. Section 12(3) enables the arbitrator
being challenged if
(i) the circumstances give rise to justifiable doubts as to his
independence or impartiality, or
(ii) he does not possess the qualifications agreed to by the
parties.
32. Section 18 requires the arbitrator to treat the parties with
equality (that is to say without bias) and give each party full
opportunity lo present his case. Nothing in Sections II, 12, 18 or
other provisions of the Act suggests that any provision in an
arbitration agreement, naming the arbitrator will be invalid if such
named arbitrator is an employee of one of the parties to the
arbitration agreement."
18. In the same decision, this Cowt in paragraphs 34 and 35 dealt
with 'justifiable apprehension about the independence or impartiality" of
an employee arbitrator in following terms:-
"34. The fact that the named arbitrator is an employee of one of
the parties is not ipso facto a ground to raise a presumption of
bias or partiality or lack of independence on his part. There can
however be a justifiable apprehension about the independence or
impa11iality of an employee arbitrator, if such person was the
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controlling or dealing authority in regard to the subject contract or
if he is a direct subordinate (as contrasted from an officer of an
inferior rank in some other Department) to the officer whose
decision is the subject-matter of the dispute.
35. Where however the named arbitrator though a senior officer
of the Government/statutory body/government company, had
nothing to do with the execution of the subject contract, there can
be no justification for anyone doubting his independence or
impartiality, in the absence of any specific evidence. Therefore,
senior officer(s) (usually Heads of Department or equivalent) of
a Government/statutory corporation/public sector undertaking, not
associated with the contract, are considered to be independent
and impartial and arc not barred from functioning as arbitrators
merely because their employer is a party to the contract."
19. Section 12(1) as it then stood before the Amendment Act
came into force, obliged the person approached in connection with possible
appointment as an arbitrator. to disclose in writing any circumstances
likely to give rise to justifiable doubts as to his independence or
impartiality. In the present case, the Arbitrator undoubtedly is an employee
of the Appellant but so long as there is no justifiable apprehension about
his independence or impartiality, the appointment could not be rendered
invalid and unenforceable. As held in the case of llldian Oil
Corporation Ltd, (supra) mere fact that the arbitrator is an employee is
not ipso facto a ground to raise any presumption of bias or partiality. It
is not the case that there had not been any fair and correct disclosure.
All that the Respondent alleged in its petition seeking termination of the
mandate of the Arbitrator was," ..... he has himselfin his official capacity
in the Respondent-Company dealt with contracts ofnature similar to the
contract works in question .... " The Respondent, while relying on the
provisions of the Amendment Act had also submitted, " ....