High Court of Delhi

Ram Kumar and Ors. vs. Shriram Transport Finance Co. Ltd.

MANU/DE/4941/2022

05.12.2022

Arbitration

An award rendered by a person who is ineligible to act as an arbitrator cannot be considered as an arbitral award

The Appellants have filed the present appeal under Section 37 of the Arbitration and Conciliation Act, 1996 ('the A and C Act') impugning an order rendered by the learned Commercial Court. By virtue of the impugned order, the learned Commercial Court rejected the Appellants' application preferred under Section 34 of the A and C Act whereby they had impugned an arbitral award delivered by an arbitral tribunal comprising of a sole arbitrator.

The principal controversy that needs to be addressed is whether the impugned award is vitiated on the ground that the learned Sole Arbitrator had failed to make the necessary disclosure as required under Section 12(1) of the A and C Act; and, whether he was ineligible to be appointed as an arbitrator.

It is necessary to note that the language of Section 12(1) of the A&C Act does not leave it at the discretion of any person, approached in connection with being appointed as an arbitrator, to make the necessary disclosures. The use of the words "he shall disclose" in Section 12(1) of the A&C Act makes it mandatory for the person who is approached in connection with his possible appointment as an arbitrator, to make a disclosure of all circumstances that may give rise to justifiable doubts as to his independence and impartiality.

This Court is of the view that the requirement of making a disclosure is a necessary safeguard for ensuring the integrity and efficacy of an arbitration as an alternate dispute resolution mechanism and is not optional. An award rendered by a person who is ineligible to act as an arbitrator would be of little value; it cannot be considered as an arbitral award under the A and C Act. While it is permissible for the parties to agree to waive the ineligibility of an arbitrator, the proviso to Section 12(5) of the A and C Act makes it clear that such an agreement requires to be in writing.

In the present case, the learned Commercial Court had proceeded on the basis that the Appellants are precluded from raising an objection as to the ineligibility of the arbitrator as no such application was made by the appellants before the Arbitral Tribunal. The learned Commercial Court has also faulted the Appellants by not providing the full particulars as to the number of arbitrations conducted by the learned Sole Arbitrator for the Respondent company in the past three years. In addition, the Appellants have been faulted by the learned Commercial Court in not filing an application before the learned Sole Arbitrator, seeking a declaration as required under Section 12(5) of the A and C Act.

This Court is of the view that, the approach of the learned Commercial Court is flawed. Unilateral appointment of the Arbitrator by the respondent is impermissible. The fact that the learned Sole Arbitrator had been engaged in a number of matters by the Respondent is, concededly, a material fact that would raise justifiable grounds as to his independence and impartiality. Thus, in addition to being ineligible as an arbitrator under Section 12(5) of the A and C Act, the grounds giving rise to justifiable doubts as to the independence and impartiality exist in the present case.

The learned Sole Arbitrator was required to disclose in writing such circumstances which are likely to give rise to justifiable doubts as to his independence and impartiality, but he had failed to make any such disclosure. Since the grounds giving rise to justifiable doubts as to impartiality exist, failure to make such disclosure vitiates the arbitral proceedings and the impugned award. The impugned order as well as the impugned award are set aside. Appeal allowed.

Tags : Arbitrator Appointment Disclosure

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