# TRFLTD v. ENERGO ENGINEERING PROJECTS LTD

- **Citation:** [2017] 7 S.C.R. 409
- **Court:** Supreme Court of India
- **Decided:** 2017
- **Case number:** Civil Appeal No. 5306 of2017
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/trfltd-v-energo-engineering-projects-ltd-32060
- **Pages:** 33

## Headnote

[2017] 7 S.C.R. 409
TRFLTD.
v.
ENERGO ENGINEERING PROJECTS LTD.
(Civil Appeal No. 5306 of2017)
JULY 03,2017
(DIPAK MISRA, A. M. KHANWILKAR AND
MOHAN M. SHANTANAGOUDAR, JJ.I
Arbitration and Conciliation Act, 1996-s.12(5)-Appointment
A
B
of arbitrator by nomination - Any person falling under any of
categories specified in the seventh schedule shall be ineligible to
C
be appointed as arbitrator - Such person who is statutorily ineligible
cannot nominate a person - In the instant case, since the Managing
Director of the respondent becomes ineligible to act as an arbitrator
subsequent to the amendment in the Act, he could also not have
nominated any other person as arbitrator.
'
. Allowing the appeals and remitting the matters to the High
Court, the Court
HELD: 1. Sub-section (5) of Section 12 categorically lays
down that if a person whose relationship with the parties or the
counsel or the subject matter of dispute falls under any of the
categories specified in the Seventh Schedule shall be ineligible
to be appointed as an arbitrator. There is a qualifier which
indicates that parties may, subsequent to the disputes arisen
between them, waive the applicability by express agreement in
writing. The qualifier finds place in the proviso appended to subsection (5) of Section 12. There are fundamentally three
components, namely, the parties can waive the applicability of
the sub-section; the said waiver can only take place subsequent
D
E
F
to dispute having arisen between the parties; and such waiver
must be by an express agreement in writing. The Seventh
Schedule has three parts, namely, (i) arbitrator's relationship with
G
the parties or counsel; (ii) relationship of the arbitrator to the
dispute; and (iii) arbitrator's direct or indirect interest in the
dispute. It is not in dispute that the amended provision that has
introduced sub-section (5) to Section 12, had enumerated the
disqualification in the Seventh Schedule. The agreement had
H
409
410
A
B
SUPREME COURT REPORTS
[2017] 7 S.C.R.
been entered into before the amendment came into force. The
procedure for appointment was, thus, agreed upon. It was
observed by the designated Judge that the amending provision
does not take away the right of a party to nominate a sole arbitrator,
otherwise the legislature could have amended other provisions.
He also observed that the grounds including the objections under
the Fifth and the Seventh Schedules of the amended Act can be
raised before the Arbitral Tribunal and further when the
nominated arbitrator has made the disclosure as required under
the Sixth Schedule to the Act, there was no justification for
interference. That apart, he also held in his conclusion that besides
C the stipulation of the agreement governing the parties, the Court
has decided to appoint the arbitrator as the sole arbitrator to
decide the dispute between the parties. [Paras 10, 12, 13, 17J(421D-G; 423-A-DJ
2. Clause (c) states that all disputes which cannot be settled
D by mutual negotiation shall be referred to and determined by
arbitration as per the Act, as amended. Clause (c) is independent
of Clause (d). Clause (d) provides that unless otherwise
provided, any dispute or difference between the parties in
connection with the agreement shall be referred to the sole
E
F
arbitration of the Managing Director or his nominee. There is
no quarrel that by virtue of Section 12(5) of the Act, if any person
who falls under any of the categories specified in the Seventh
Schedule shall be ineligible to be appointed as the arbitrator. If
there is a clause requiring the parties to nominate their respective
arbitrator, their authority to nominate cannot be questioned.
What really in that circumstance can be called in question is the
procedural compliance and the eligibility of their arbitrator
depending upon the norms provided under the Act and the
Schedules appended thereto. But, here is a case where the
Managing Director is the "named sole arbitrator" and he has
also been confer

## Text

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[2017] 7 S.C.R. 409
TRFLTD.
v.
ENERGO ENGINEERING PROJECTS LTD.
(Civil Appeal No. 5306 of2017)
JULY 03,2017
(DIPAK MISRA, A. M. KHANWILKAR AND
MOHAN M. SHANTANAGOUDAR, JJ.I
Arbitration and Conciliation Act, 1996-s.12(5)-Appointment
A
B
of arbitrator by nomination - Any person falling under any of
categories specified in the seventh schedule shall be ineligible to
C
be appointed as arbitrator - Such person who is statutorily ineligible
cannot nominate a person - In the instant case, since the Managing
Director of the respondent becomes ineligible to act as an arbitrator
subsequent to the amendment in the Act, he could also not have
nominated any other person as arbitrator.
'
. Allowing the appeals and remitting the matters to the High
Court, the Court
HELD: 1. Sub-section (5) of Section 12 categorically lays
down that if a person whose relationship with the parties or the
counsel or the subject matter of dispute falls under any of the
categories specified in the Seventh Schedule shall be ineligible
to be appointed as an arbitrator. There is a qualifier which
indicates that parties may, subsequent to the disputes arisen
between them, waive the applicability by express agreement in
writing. The qualifier finds place in the proviso appended to subsection (5) of Section 12. There are fundamentally three
components, namely, the parties can waive the applicability of
the sub-section; the said waiver can only take place subsequent
D
E
F
to dispute having arisen between the parties; and such waiver
must be by an express agreement in writing. The Seventh
Schedule has three parts, namely, (i) arbitrator's relationship with
G
the parties or counsel; (ii) relationship of the arbitrator to the
dispute; and (iii) arbitrator's direct or indirect interest in the
dispute. It is not in dispute that the amended provision that has
introduced sub-section (5) to Section 12, had enumerated the
disqualification in the Seventh Schedule. The agreement had
H
409
410
A
B
SUPREME COURT REPORTS
[2017] 7 S.C.R.
been entered into before the amendment came into force. The
procedure for appointment was, thus, agreed upon. It was
observed by the designated Judge that the amending provision
does not take away the right of a party to nominate a sole arbitrator,
otherwise the legislature could have amended other provisions.
He also observed that the grounds including the objections under
the Fifth and the Seventh Schedules of the amended Act can be
raised before the Arbitral Tribunal and further when the
nominated arbitrator has made the disclosure as required under
the Sixth Schedule to the Act, there was no justification for
interference. That apart, he also held in his conclusion that besides
C the stipulation of the agreement governing the parties, the Court
has decided to appoint the arbitrator as the sole arbitrator to
decide the dispute between the parties. [Paras 10, 12, 13, 17J(421D-G; 423-A-DJ
2. Clause (c) states that all disputes which cannot be settled
D by mutual negotiation shall be referred to and determined by
arbitration as per the Act, as amended. Clause (c) is independent
of Clause (d). Clause (d) provides that unless otherwise
provided, any dispute or difference between the parties in
connection with the agreement shall be referred to the sole
E
F
arbitration of the Managing Director or his nominee. There is
no quarrel that by virtue of Section 12(5) of the Act, if any person
who falls under any of the categories specified in the Seventh
Schedule shall be ineligible to be appointed as the arbitrator. If
there is a clause requiring the parties to nominate their respective
arbitrator, their authority to nominate cannot be questioned.
What really in that circumstance can be called in question is the
procedural compliance and the eligibility of their arbitrator
depending upon the norms provided under the Act and the
Schedules appended thereto. But, here is a case where the
Managing Director is the "named sole arbitrator" and he has
also been conferred with the power to nominate one who can be
G the arbitrator in his place. Once the arbitrator has become
ineligible by operation of law, he cannot nominate another as an
arbitrator. The arbitrator becomes ineligible as per prescription
contained in Section 12(5) of the Act. It is inconceivable in law
that person who is statutorily ineligible can nominate a person.
H
TRF LTD. v. ENERGO ENGINEERING PROJECTS LTD.
411
[Paras 52, 53, 57][438-E-G; 439-C-D; 441-B)
A
3. Another facet needs to be addressed. The Designated
Judge in a cryptic manner has ruled after noting that the petitioner
therein had no reservation for nomination of the nominated
arbitrator and further taking note of the fact that there has been
a disclosure, that he has exercised the power under Section 11(6)
B
of the Act. That is not the right procedure to be adopted. The
order appointing the arbitrator is set aside. However, as Clause
(c) is independent of Clause (d), the arbitration clause survives
and hence, the Court can appoint an arbitrator taking into
consideration all the aspects. [Para 58)[441-D-EJ
Arasmeta Captive Power Company Private Limited and
another v. Lafarge India Private Limited (2013) 15 SCC
414: [2013] 17 SCR 496; Chiaro Controls India Private
Limited v. Severn Trent Water Purification Inc. (2013) 1
SCC 641 : [2012) 13 SCR 402 - relied on.
Antrix Corporation Limited v. Devas Multimedia Private
Limited (2014) 11 SCC 560 : [2013) 6 SCR 453 -
distinguished.
State of West Bengal v. Associated Contractors (2015)
1 SCC 32 : [2014) 10 SCR 426 - held inapplicable.
Chairman, Indore Vikas Pradhikaran v. Pure Industrial
Coke & Chemicals Ltd. & others (2007) 8 SCC 705 :
[2007) 6 SCR 799; Firm of Pratapchand Nopaji v. Firm
of Kotrike Venkata Setty & Sons and others (1975) 2
SCC 208 : [1975) 3 SCR 1; Walter Bau AG, Legal
Successor, of the Original Contractor, Dyckerhojf and
Widmann A.G v. Municipal Corporation of Greater
Mumbai (2015) 3 SCC 800 : [2015) 2 SCR 37; Northern
Railway Administration, Ministry of Railways, New
Delhi v. Patel Engineering Company Limited (2008) 10
SCC 240: [2008) 12 SCR 216; Datar Switchgears Ltd.
v. Tata Finance Ltd. and another (2000) 8 SCC 151;
Naginbhai C. Patel v. Union of India (1999) 2 Born
CR 189 (Born); B. W.L. Ltd. v. MTNL (2000) 2 Arb LR
190; Sharma & Sons v. Engineer-in-Chief. Army
Headquarters, New Delhi (2000) 2 Arb LR 31 (AP);
c
D
E
F
G
H
412
A
B
c
D
E
F
G
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SUPREME COURT REPORTS
[2017] 7 S.C.R.
Newton Engineering and Chemicals Limited v. Indian
Oil Corporation Limited and others (2013) 4 SCC 44;
Deep Trading Company v. Indian Oil Corporation and
others (2013) 4 SCC 35 : [2013) 2 SCR 470; Pun}
Lloyd Ltd. v. Petrone! MHB Ltd. (2006) 2 SCC 638;
Municipal Corpn., Jabalapur and others v. Rajesh
Construction Co (2007) 5 SCC 344 : [2007) 5
SCR 137; Pricol Limited v. Johnson Controls
Enterprise Limited (2015) 4 SCC 177; State of
Maharashtra v. Atlanta Limited (2014) 11 SCC 619 :
[2014) 1 SCR 507; SBP & Co. v. Patel Engineering
Ltd. (2005) 8 sec 618 : [2005) 4 Suppl. SCR 688;
State of Orissa and others v. Commissioner of Land
Records & Settlement, Cuttack and others (1998) 7
SCC 162 : [1998] 1 Suppl. SCR 130; Behari Kun}
Sahkari Awas Samiti v. State of U.P. (1997) 7 SCC 37 :
[1997) 3 Suppl. SCR 460; Roop Chand v. State of
Punjab AIR 1963 SC 1503 : [1963) Suppl. SCR 539 -
referred to.
Case Law Reference
[2007) 6 SCR 799
referred to
Para6
[1975) 3 SCR 1
referred to
Para 6
[2015) 2 SCR 37
referred to
Para 6
[2013) 6 SCR 453
distinguished
Para 7
[2014] 10 SCR 426
held inapplicable Para 7
[2008) 12 SCR 216
referred to
Para 18
(2000) 8 sec 151
referred to ·
Para 20
(1999) 2 Born CR 189 (Born) referred to
Para 21
(2000) 2 Arb LR 190
referred to
Para 21
(2000) 2 Arb LR 31 (AP)
referred to
Para 21
(2013) 4 sec 44
referred to
Para 23
[2013) 2 SCR 470
referred to
Para 25
(2006) 2 sec 638
referred to
Para 25
TRF LTD. v. ENERGO ENGINEERING PROJECTS LTD.
413
[20071 5 SCR137
referred to
Para 30
A
(2015) 4 sec 111
referred to
Para 33
[20141 1 SCR 507
referred to
Para 37
[20051 4 Suppl. SCR 688
referred to
Para 37
[20131 17 SCR 496
relied on
Para 42
B
[20121 13 SCR 402
relied on
Para 42
[19981 1 Suppl. SCR 130
referred to
Para 53
[1997) 3 Suppl. SCR 460
referred to
Para 54
[19631 Suppl. SCR 539
referred to
Para 54
c
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5306
of2017.
From the Judgment and Order dated 19.04.2016 of the High Court
of Delhi at New Delhi in Arbitration Petition No. 89 of2016
D
WITH
C. A. Nos. 5309, 5311, 5308 and 5307 of2017.
C. A. Sundaram, Sr. Adv., Sumeet Gadodia, Kaushik Poddar,
Gautam Singh, Advs. for the Appellant.
Dhruv Dewan, Ms. Reena Choudhary, S. S. Shroff, Advs. for the
Respondent.
The Judgment of the Court was delivered by
E
DIP AK MISRA, J. 1. In this batch of appeals. by special leave,
the seminal issues that emanate for consideration are; whether the High
F
Court, while dealing with the applications under Section 11 ( 6) of the
Arbitration and Conciliation Act, 1996 (for brevity, "the Act"), is justified
to repel the submissions of the appellants that once the person who was
required to arbitrate upon the disputes arisen under the terms and
conditions of the contract becomes ineligible by operation of law, he
G
would not be eligible to nominate a person as an arbitrator, and second,
a plea that pertains to statutory disqualification of the nominated arbitrator
can be raised before the court in application preferred under Section
11(6) of the Act, for such an application is not incompetent. For the
sake of clarity, convenience and apposite appreciation, we shall state
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414
SUPREME COURT REPORTS
[2017] 7 S.C.R.
A
the facts from Civil Appeal No. 5306 of2017.
2. The respondent-company is engaged in the business of procuring
bulk material handling equipment for installation in thermal power plants
on behalf of its clients like National Thermal Power Corporation (NTPC)
and Moser Baer, Lanco Projects Ltd., etc. On 1Q1h May, 2014, the
B
respondent issued a purchase order to the appellant for the complete
design, manufacturing, supply, transport to site, unloading, storage,
erection, testing, commissioning and performance guarantee testing 6f
various articles including wagon tippler, side arm charger, apron feeder,
etc. To secure the performance under the purchase order, the appellant
had submitted an advance bank guarantee and a performance bank
c guarantee.
3. As the controversy arose with regard to encashment of bank
guarantee, the appellant approached the High Court under Section 9 of
the Act seeking an order of restraint for encashment of the advance
bank guarantee and the performance bank guarantee. As is reflectible
D
from the impugned order, the said petitions were pending consideration
when the High Court dealt with this matter. Be that as it may, the
narration of the controversy under Section 9 in the impugned order or
the consequences thereof is not germane to the adjudication of this case.
4. As the facts would unveil, the appellant vide letter dated
E
28.12.2015 invoked the arbitration in terms of Clause 33 of the General
Terms and Conditions of the Purchase Order (GTCPO) seeking reference
of the disputes that had arisen between the parties to an arbitrator. It
was also asserted before the High Court that the appellant had objected
to the procedure for appointment of arbitrator provided under the
F
purchase order and accordingly communicated that an arbitrator be
appointed de hors the specific terms of the purchase order. There was
denial of the same by the respondent on the ground that it was contrary
to the binding contractual terms and accordingly it rejected the suggestion
given by the appellant and eventually by letter dated 27.1.2016 nominated
an arbitrator, a former Judge of this Court, as the sole arbitrator in terms
G
of Clause 33( d) of the purchase order. It is apt to note here that in
certain cases, a former Chief Justice of a High Court was also appointed
as arbitrator by the Managing Director.
H
5. After the appointment was made, the appellant preferred an
application under Section 11(5) read with Section 11(6) of the Act for
TRF LTD. v. ENERGO ENGINEERING PROJECTS LTD.
415
[DIPAK MISRA, J.]
appointment of an arbitrator under Section 11 (2) of the Act. The said
A
foundation was structured on the basis that under Section 12(5) of the
Arbitration and Conciliation (Amendment) Act, 2015 (3 of 2016) read
with the Fifth and the Seventh Schedules to the amended Act, the
Managing Director had become ineligible to act as the arbitrator and as
a natural corollary, he had no power to nominate. The stand put forth by
B
the appellant was controverted by the respondent before the High Court
on the ground that the Fifth and the Seventh Schedules lay down the
guidelines and the arbitrator is not covered under the same and even if it
is so, his power to nominate someone to act as an arbitrator is not fettered
or abrogated. The High Court analysed the clauses in the agreement
and opined that the right of one party to a dispute to appoint a sole
C
arbitrator prior to the amended Act had been well recognized and the
amended Act does not take away such a right. According to the learned
designated Judge, had the intent of the amended Act been to take away
a party's right to nominate a sole arbitrator, the same would have been
found in the detailed list of ineligibility criteria enumerated under the
D
Seventh Schedule to the Act and, therefore, the submission advanced by
the appellant, the petitioner before the High Court, was without any
substance. Additionally, the High Court noted that the learned counsel
for the petitioner before it had clearly stated that it had faith in the
arbitrator but he was raising the issue as a legal one, for a Managing
Director once disqualified, he cannot nominate. That apart, it took note
of the fact that the learned arbitrator by letter dated 28.1.2016 has
furnished the requisite disclosures under the Sixth Schedule and, therefore,
there were no circumstances which were likely to give rise to justifiable
doubts as to the independence and impartiality. Finally, the designated
Judge directed that besides the stipulation in the purchase order governing
· the parties, the court was inclined to appoint the former Judge as the
sole arbitrator to decide the disputes between the parties.
6. Questioning the soundness of the order passed by the High
Court, Mr. Sundaram, learned senior counsel for the appellant has raised
the following contentions:
(i) The relevant clause in the agreement relating to appointment of
arbitrator has become void in view of Section 12(5) of the amended
Act, for the Managing Director having statutorily become ineligible,
cannot act as an arbitrator and that acts as a disqualification and in
such a situation to sustain the stand that his nominees have been
E
F
G
H
416
A
B
c
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SUPREME COURT REPORTS
[2017) 7 S.C.R.
validly appointed arbitrators would bring in an anomalous situation
which is not countenanced in law.
(ii) Once the owner/employer has been declared disqualified in law,
a nominee by the owner to arbitrate upon is legally unacceptable. In
support of this proposition, reliance has been placed upon Chairma11,
Indore Vikas Pradhikaran v. Pure l11dustrial Coke & Chemicals
Ltd. & others'.
(iii) The principle embedded in the maxim Qui Facit Per A/ium Facit
Per Se (What one does through another is done by oneself) is attracted
in the instant case. Additionally, if such liberty is granted, it will usher
in the concept that an action that cannot be done or is outside the
prohibited area can be done illegally by taking means to the
appointment of a nominee. In this regard, the decision in Firm of
Pratapcha11d Nopaji v. Firm of Kotrike Ve11kata Setty & Sons
and others2 has been commended.
(iv) The status of the nominee does not take away the prohibition of
ineligibility of nomination as the nominator has become ineligible to
arbitrate upon. A legal issue of this nature which goes to the very
root of the appointment of the arbitrator pertaining to his appointment
which is ex facie invalid, cannot be said to be raised before the arbitral
tribunal. For this purpose, inspiration has been drawn from the
authority in Walter Bau A4 Legal Successor, of the Original
Contractor, Dyckerhoff a11d Widma1111 A.Ci v. M1micipal
Corporation of Greater M umbai3.
7. Mr. Chidambaram, learned senior counsel for the respondent,
assisted by Mr. S.S. Shroff, resisting the aforesaid submissions, raised
by the learned senior counsel for the appellant, proponed as follows:
(a) The submission to the effect that since the Managing Director
of the respondent has become ineligible to act as an arbitrator subsequent
to the amendment in the Act, he could also not have nominated any
other person as arbitrator is absolutely unsustainable, for the Fifth and
G
the Seventh Schedules fundamentally guide in determining whether
circumstances exist which give rise to justifiable doubts as to the
independence and impartiality of the arbitrator. To elaborate, if any
H
1 (2007) 8 sec 105
2 (1975) 2 sec 208
' (2015) 3 sec 800
TRF LTD. v. ENERGO ENGINEERING PROJECTS LTD.
417
[DlPAK MISRA, J.]
person whose relationship with the parties or the counsel or the subject A
matter of dispute falls under any of the categories specified in the Seventh
Schedule, he is ineligible to be appointed as an arbitrator but not otherwise.
(b) The appellants have not been able to substantiate before the
High Court how the appointment of the sole arbitrator falls foul of the
Seventh Schedule and in the absence of that, the appeals, being devoid
B
of merit, deserve to be dismissed. As far as language employed in the
Fifth Schedule is concerned, it is also a guide, which indicates existence
of circumstances that give rise to justifiable doubts as to the arbitrator's
independence and impartiality and when such a stand has been abandoned
before the High Court, the impugned order is totally invulnerable.
(c) On a careful appreciation of the Fifth and Seventh Schedules
of the amended Act, it is manifest that grounds provided thereunder
clearly pertain to the appointed arbitrator and not relating to the appointing
authority and, therefore, each and every ground/circumstance categorized
under the Fifth and Seventh Schedules is to be reckoned and decided
vis-a-vis the appointed arbitrator alone and not as a general principle.
(d) There is no warrant for the conclusion that an appointed
arbitrator will automatically stand disqualified merely because the named
arbitrator has become ineligible to become the arbitrator, for he always
has the right to nominate an independent and neutral arbitrator.·
( e) The language of the purchase order does not stipulate that the
Managing Director of the respondent will have the right to nominate a
sole arbitrator as long as he is also qualified to act as an arbitrator. The
role to act as an arbitrator and to nominate an arbitrator are in two
independent spheres and hence, the authority to nominate is not curtailed.
(f) Challenge to an appointment of arbitrator under Section 13 of
the Act can only be made before the Arbitral Tribunal, for despite
introducing the Fifth, the Sixth and the Seventh Schedules to the amended
Act under Section 12, the Legislature has consciously retained the
challenge procedure under Section 13 of the Act. It is because Sections
13(2) and Section 13(3) of the Act clearly postulate that a challenge to
the authority of arbitrator has to be made before the arbitral tribunal and
the said procedure cannot be bypassed by ventilating the objection under
Section 11 of the Act. Any objection to be raised under the Fifth Schedule
c
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or the Seventh Schedule of the amended Act has to be raised before the
arbitral tribunal. To bolster the said submission, heavy reliance has been
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SUPREME COURT REPORTS
[2017] 7 S.C.R.
A
placed on Antrix Corporation Limited v. Devas Multimedia Private
Limited4•
(g) The authority relied on Walter Bau AG (supra) is not a
precedent for the proposition advanced, as it was dealing with a challenge
to an order of a judicial authority and not that ofa court and furthermore
B
the said decision has been distinguished in State of West Bengal v.
Associated Contractors5•
8. To appreciate the contentions raised at the Bar, it is necessary
to refer to the relevant clauses of the GTCPO that deals with the
resolution of dispute. Clause 33 that provides resolution of disputes/
c arbitration reads as follows:
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"33. Resolution of dispute/arbitration
a. In case any disagreement or dispute arises between the buyer
and the seller under or in connection with the PO, both shall
make every effort to resolve it amicably by direct informal
negotiation.
b. lf, even after 30 days from the commencement of such informal
negotiation, seller and the buyer have not been able to resolve
the dispute amicably, either party may require that the dispute
be referred for resolution to the formal mechanism of arbitration.
c. All disputes which cannot be settled by mutual negotiation shall
be referred to and determined by arbitration as per the
Arbitration and Conciliation Act, 1996 as amended.
d. Unless otherwise provided, any dispute or difference between
the parties in connection with this agreement shall be referred
to sole arbitration of the Managing Director of Buyer or his
nominee. Venue of arbitration shall be Delhi, and the arbitration
shall be conducted in English language.
e. The award of the tribunal shall be final and binding on both;
buyer and seller."
9. We have reproduced the entire Clause 33 to appreciate the
dispute resolution mechanism in its proper perspective. Sub-clause (c)
of Clause 33 clearly postulates that if the dispute cannot be settled by
• (2014) 11sec560
' (2015) 1 sec 32
TRF LTD. v. ENERGO ENGINEERING PROJECTS LTD.
419
[DlPAK MISRA, J.]
negotiation, it has to be determined under the Act, as amended. Therefore,
A
the amended provisions do apply. Sub-clause (d) stipulates that dispute
or reference between the parties in connection with the agreement shall
be referred to sole arbitration of the Managing Director of the buyer or
his nominee. This is the facet of the clause which is required to be
interpreted and appositely dwelt upon. Prior to amendment, Section 12
read as follows:
"12. Grounds for challenge.-
B
( l) 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 c
independence or impartiality.
(2) An arbitrator, from the time of his appointment and throughout
the arbitral proceedings, shall, without delay, disclose to the parties
in writing any circumstances referred to in sub-section ( l) unless
they have already been informed of them by him.
D
(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.
(4) A party may challenge an arbitrator appointed by him, or in
whose appointment he has participated, only for reasons of which
he becomes aware after the appointment has been made."
10. Section 13 of the Act dealt with challenge procedure. After
E
the amendment, Section 12 that deals with the grounds of challenge is as
F
follows:
"12. Grounds for challenge.-
(l) When a person is approached in connection with his possible
appointment as an arbitrator, he shall disclose in writing any
circumstances,-
(a) such as the existence either direct or indirect, of any past or
present relationship with or interest in any of the parties or in
relation to the subject-matter in dispute, which is likely to give
rise to justifiable doubts as to his independence or impartiality;
G
and
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SUPREME COURT REPORTS
[2017] 7 S.C.R.
A
(b) which are likely to affect his ability to devote sufficient time to
the arbitration and in particular his ability to complete the entire
arbitration within a period of twelve months.
Explanation 1.-The grounds stated in the Fifth Schedule shall
guide in determining whether circumstances exist which give rise
B
to justifiable doubts as to the independence or impartiality of an
arbitrator.
c
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Explanation 2.-The disclosure shall be made by such person in
the form specified in the Sixth Schedule.
(2) An arbitrator, from the time of his appointment and throughout
the arbitral proceedings, shall, without delay, disclose to the parties
in writing any circumstances referred to in sub-section ( 1) 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.
(4) A party may challenge an arbitrator appointed by him, or in
whose appointment he has participated, only for reasons of which
he becomes aware after the appointment has been made.
(5) Notwithstanding any prior agreement to the contrary, any
person whose relationship, with the parties or counsel or the
subject-matter of the dispute, falls under any of the categories
specified in the Seventh Schedule shall be ineligible to be appointed
as an arbitrator:
Provided that parties may, subsequent to disputes having arisen
between them, waive the applicability of this sub-section by an
express agreement in writing."
11. We have referred to both the provisions to appreciate the
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change in the fundamental concept of grounds for challenge. The
disclosures to be made by the arbitrator have been made specific and
the disclosures are required to be made in accordance with the Sixth
Schedule to the amended Act. The Sixth Schedule stipulates, apart from
others, the circumstances which are to be disclosed. We think it
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421
[DIPAK MISRA, J.]
appropriate to reproduce the same:
A
"CIRCUMSTANCES DISCLOSING ANY PAST OR
PRESENT RELATIONSHIP WITH OR INTEREST IN ANY
OF THE PARTIES OR IN RELATION TO THE SUBJECTMATTER IN DISPUTE, WHETHER FINANCIAL,
BUSINESS, PROFESSIONAL OR OTHER KIND, WHICH IS
B
LIKELY TO GIVE RISE TO JUSTIFIABLE DOUBTS AS TO
YOUR INDEPENDENCE OR IMPARTIALITY (LIST OUT):
CIRCUMSTANCES WHICH ARE LIKELY TO AFFECT
YOUR ABILITY TO DEVOTE SUFFICIENT TIME TO THE
ARBITRATION AND IN PARTICULAR YOUR ABILITY TO
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FINISH THE ENTIRE ARBITRATION WITHIN TWELVE
MONTHS (LIST OUT)"
12. Sub-section (5) of Section 12, on which immense stress has
been laid by the learned counsel for the appellant, as has been reproduced
above, commences with a non-obstante clause. It categorically lays
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down that if a person whose relationship with the parties or the counsel
or the subject matterof dispute falls under any of the categories specified
in the Seventh Schedule shall be ineligible to be appointed as an arbitrator.
There is a qualifier which indicates that parties may, subsequent to the
disputes arisen between them, waive the applicability by express
agreement in writing. The qualifier finds place in the proviso appended
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to sub-section (5) of Section 12. On a careful scrutiny of the proviso, it
is discernible that there are fundamentally three components, namely,
the parties can waive the applicability of the sub-section; the said waiver
can only take place subsequent to dispute having arisen between the
parties; and such waiver must be by an express agreement in writing.
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13. At this stage, we think it appropriate to refer to the Seventh
Schedule, which finds mention in Section 12(5). The Seventh Schedule
has three parts, namely, (i) arbitrator's relationship with the parties or
counsel; (ii) relationship of the arbitrator to the dispute; and (iii) arbitrator's
direct or indirect interest in the dispute.
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14. In the present case, we are concerned with the first part of
the Seventh Schedule. Be it noted, the first part has 14 items. For the
present controversy, the relevant items are item nos. 1, 5 and 12, which
read as follows:
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"1. The arbitrator is an employee, consultant, advisor or has any
other.past or present business relationship with a party.
B
xxxx
xxxx
5. The arbitrator is a manager, director or part of the management,
or has a similar controlling influence, in an affiliate of one of the
parties ifthe affiliate is directly involved in the matters in dispute
in the arbitration.
xxxx
xxxx
12. The arbitrator is a manager, director or part of the management,
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or has a similar controlling influence in one of the parties."
15. We will be failing in our duty, if we do not refer to some of the
aspects which find mention in the Fifth Schedule. Our attention has been
drawn to item nos. 22 and 24 of the Fifth Schedule. They are as follows:
"22. The arbitrator has within the past three years been appointed
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as arbitrator on two or more occasions by one of the parties or an
affiliate of one of the parties.
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xxxxx
xxxxx
24. The arbitrator currently serves, or has served within the past
three years, as arbitrator in another arbitration on a related issue
involving one of the parties or an affiliate of one of the parties."
We have noted this for the sake of completion.
16. What is fundamentally urged, as is noticeable from the
submissions of Mr. Sundaram, learned senior counsel appearing for the
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appellants, is that the learned arbitrator could not have been nominated
by the Managing Director as the said authority has been statutorily
disqualified. The submission of the respondent, per contra, is that the
Managing Director may be disqualified to act as an arbitrator, but he is
not deprived of his right to nominate an arbitrator who has no relationship
with the respondent. Additionally, it is assiduously urged that if the
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appointment is hit by the Fifth Schedule or the Sixth Schedule or the
Seventh Schedule, the same has to be raised before the arbitral tribunal
during the arbitration proceeding but not in an application under
Section 11 ( 6) of the Act.
17. First we shall address the issue whether the Court can enter
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TRF LTD. v. ENERGO ENGINEERING PROJECTS LTD.
423
[DIPAK MISRA, J.]
into the arena of controversy at this stage. It is not in dispute that the
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Managing Director, by virtue of the amended provision that has introduced
sub-section (5) to Section 12, had enumerated the disqualification in the
Seventh Schedule. It has to be clarified here that the agreement had
been entered into before the amendment came into force. The procedure
for appointment was, thus, agreed upon. It has been observed by the
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designated Judge that the amending provision does not take away the
right of a party to nominate a sole arbitrator, otherwise the legislature
could have amended other provisions. He has also observed that the
grounds including the objections under the Fifth and the Seventh
Schedules of the amended Act can be raised before the Arbitral Tribunal
and further when the nominated arbitrator has made the disclosure as
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required under the Sixth Schedule to the Act, there was no justification
for interference. That apart, he has also held in his conclusion that
besides the stipulation of the agreement governing the parties, the Court
has decided to appoint the arbitrator as the sole arbitrator to decide the
dispute between the parties.
18. In Nortliem Railway Administration, Ministry of Railways,
New Delhi v. Patel Engineering Company Limitetf', while dealing
with the sub-section (6) of Section 11 and sub-section (8) of Section 11
and appreciating the stipulations in sub-sections (3) and (5), a threeJudge Bench opined that:
"The expression "due regard" means that proper attention to
several circumstances have been focused. The expression
"necessary" as a general rule can be broadly stated to be those
things which are reasonably required to be done or legally ancillary
to the accomplishment of the intended act. Necessary measures
can be stated to be the reasonable steps required to be taken."
19. Being of this view, the Court ruled thatthe High Court had not
focused on the requirement of having due regard to the qualification
required by the agreement or other considerations necessary to secure
appointment of an independent and impartial arbitrator and further ruled
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that it needs no reiteration that appointment of an arbitrator or arbitrators
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named in the arbitration agreement is not a must because while making
the appointment, the twin responsibilities of sub-section (8) of Section 11
have to be kept in view, considered and taken into account. The Court
further observed that ifthe same is not done, the appointment becomes
' c2oosi 1 o sec 240
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vulnerable. In the said case, the Court set aside the appointment made
by the High Court and remitted the matter to make fresh appointment
keeping in, view the parameters indicated therein.
20. In Datar Switchgears Ltd. v. Tata Finance Ltd. and
another7, the appellant questioned the authority of the first respondent
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in appointing an arbitrator after a long lapse of notice period of30 days
on the foundation that the power of appointment should have been
exercised within a reasonable time. It was further contended that
unilateral appointment of arbitrator was not envisaged under the lease
agreement and, therefore, the first respondent should have obtained the
c
consent of the appellant and the name of the arbitrator should have been
proposed to the appellant before the appointment. The Court took note
of the fact that the arbitration clause in the lease agreement contemplated
appointment of a sole arbitrator. The Court further took note of the fact
that the appellant therein had not issued any notice to the first respondent
seeking appointment of an arbitrator and it explicated that an application
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under Section 11(6) of the Act can be filed when there is a failure of the
procedure for appointment of arbitrator. Elaborating the said concept,
the Court held:
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"6 .... This failure of procedure can arise under different
circumstances. It can be a case where a party who is bound to
appoint an arbitrator refuses to appoint the arbitrator or where
two appointed arbitrators fail to appoint the third arbitrator. If the
appointment of an arbitrator or any function connected with such
appointment is entrusted to any person or institution and such
person or institution fails to discharge such function, the aggrieved
party can approach the Chief Justice for appointment of an
arbitrator."
21. After so st_ating, the Court adverted to the issue whether there
was any real failure of the mechanism provided under the lease
agreement. The Court took note of the fact that the respondent had
made the appointment before the appellant had filed the application under
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Section 11 of the Act though the said appointment was made beyond ~O
days. It posed the question whether in a case falling under Section 11 ( 6)
of the Act, the opposite party cannot appoint an arbitrator after the expiry
of30 days from the date of appointment. Distinguishing the decisions of
1 (2000) s sec 1s 1
H
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[DIPAK MISRA, J.]
Naginbhai C. Patel v. Union of India", B.W.L. Ltd. v. MTNL9 and A
Sharma & Sons v. Engineer-in-Chief; Army Headquarters, New
Delhi10, the Court held:
"19. So far as cases falling under Section 11(6) are concernedsuch as the one before us -
no time limit has been prescribed
under the Act, whereas a period of 30 days has been prescribed
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under Section 11(4) and Section 11(5) of the Act. In our view,
therefore, so far as Section 11 (6) is concerned, if one party
demands the opposite party to appoint an arbitrator and the opposite
party does not make an appointment within 30 days of the demand,
the right to appointment does not get automatically forfeited after
expiry of 30 days. If the opposite party makes an appointment
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even after 30 days of the demand, but before the first party has
moved the court under Section 11. that would be sufficient. In
other words, in cases arising under Section 11( 6), if the opposite
party has not made an appointment within 30 days of demand, the
right to make appointment is not forfeited but continues, but an
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appointment has to be made before the former files application
under Section 11 seeking appointment of an arbitrator. Only then
the right of the opposite party ceases. We do not, therefore, agree
with the observation in the above judgments that if the appointment·
is not made within 30 days of demand, the right to appoint an
arbitrator under Section 11 (6) is forfeited.
[Emphasis supplied]
20. In the present case the respondent made the appointment
before the appellant filed the application under Section 11 ( 6) though
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it was beyond 30 days from the date of demand. In our view, the
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appointment of the arbitrator by the respondent is valid and it
cannot be said that the right was forfeited after expiry of 30 days
from the date of demand.
21. We need not decide whether for purposes of sub-sections (4)
and (5) of Section 11, which expressly prescribe 30 days, the
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period of30 days is mandatory or not."
And again:
' (1999) 2 Born CR 189 (Born)
' (2000) 2 Arb LR 190
'" (2000) 2 Arb LR 31 (AP)
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"23. When parties have entered into a contract and settled on a
procedure, due importance has to be given to such procedure.
Even though rigor of the doctrine of "freedom of contract" has
been whittled down by various labour and social welfare legislation,
still the court has to respect the terms of the contract entered into
by parties and endeavour to give importance and effect to it. When
the party has not disputed the arbitration clause, normally he is
bound by it and obliged to comply with the procedure laid down
under the said clause''.
22. On the aforesaid basis, the Court opined that the first
respondent did not fail to follow the procedure contemplated under the
agreement in appointing the arbitrator nor did it contravene the provisions
of the arbitration clause. The said conclusion was arrived at as the
appellant therein had really not sent a notice for appointment of arbitrator
as contemplated under Clause 20.9 of the agreement which was the
arbitration clause.
23. In Newto11 E11gi11eeri11g a11d Chemicals Limited v. /11dia11
Oil Corporation Limited a11d others 11 , a two-Judge Bench was dealing
with an arbitration clause in the agreement that provided that all disputes
and differences between the parties shall be referred by any aggrieved
party to the contract to the sole arbitration ofE.D. (NR) of the respondentE
Corporation. The arbitration clause further stipulated that if such E.D.
(NR) was unable or unwilling to act as the sole arbitrator, the matter
shall be referred to the sole arbitration of some other person designated
by E.D. (NR) in his place who was willing to act as sole arbitrator. It
also provided that no person other than E.D. (NR) or the person designated
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by the E.D. (NR) should act as an arbitrator. When the disputes arose
between the parties, the appellant therein wrote to the Corporation for
appointment of E.D. (NR) as the sole arbitrator, as per the arbitration
clause. The Corporation informed the contractor that due to internal
reorganization in the Corporation, the office of the E.D. (NR) had ceased
to exist and since the intention of the parties was to get the dispute
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settled through the arbitration, the Corporation offered to the contractor
the arbitration of the substituted arbitrator, that is, the Director
(Marketing). The Corporation further informed the contractor that ifhe
agreed to the same, it may send a written confirmation giving its consent
to the substitution of the named arbitrator. The contractor informed that
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11 c2013) 4 sec 44
TRF LTD. v.