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The Government of Haryana PWD Haryana (B and R) Branch Vs. G.F. Toll Road Pvt. Ltd. and Ors. - (Supreme Court) (03 Jan 2019)

A former employee of a party to arbitration can be appointed as an arbitrator



Appellant-State issued a Letter of Acceptance to Respondent No. 1 for execution of a works contract for construction, operation and maintenance of Gurgaon-Faridabad Road and Ballabhgarh-Sohna Road on BOT (Build, Operate and Transfer) basis. A Concession Agreement was entered into between parties. During execution of Agreement, disputes arose between parties.

Present Civil Appeal had been filed by Appellant-State to challenge Order passed by High Court dismissing Civil Revision Petition on ground that, Appellant - State could raise issue of jurisdiction under Section 16 of Arbitration and Conciliation Act, 1996 before arbitral tribunal. Further, in a situation where an objection was raised regarding the nomination of an arbitrator by one of parties, and agreement was silent with regards to mode of appointment of a substitute arbitrator, Rules applicable would be those of Institution under which arbitration was held. Issue raised in present case is whether Appointment of nominee arbitrator on behalf of Appellant - State by ICA was justified.

Provisions of Section 15(2) of Act, required that, when mandate of an arbitrator terminated either by his withdrawal from office, or pursuant to an agreement by parties, or for any reason, a substitute arbitrator shall be appointed according to Rules applicable to appointment of arbitrator being replaced. This Court in ACC Ltd. v. Global Cements Ltd. held that, procedure agreed upon by parties for appointment of original arbitrator was equally applicable to appointment of a substitute arbitrator, even if agreement does not specifically provide so.

In present case, Clause 39.2.2 of agreement expressly provided that each party shall nominate one arbitrator, and third arbitrator shall be appointed in accordance with Rules of ICA. Appellant - State had vide Letter requested for 30 days' time to appoint another nominee arbitrator, after objections were raised by ICA to first nomination. ICA declined to grant period of 30 days, and instead appointed arbitrator on behalf of Appellant - State. ICA could have filled up vacancy only if Appellant - State had no intention of filling up vacancy. ICA could not have usurped jurisdiction over appointment of nominee arbitrator on behalf of State prior to expiry of 30 days' period requested by Petitioner.

1996 Act did not disqualify a former employee from acting as an arbitrator, provided that, there were no justifiable doubts as to his independence and impartiality. Fact that arbitrator was in employment of State of Haryana over 10 years ago, would make allegation of bias clearly untenable.

ICA made only a bald assertion that nominee arbitrator - Mr. M.K. Aggarwal would not be independent and impartial. Objection of reasonable apprehension of bias raised was wholly unjustified and unsubstantiated, particularly since nominee arbitrator was a former employee of State over 10 years ago. This would not disqualify him from act as an arbitrator. Mere allegations of bias were not a ground for removal of an arbitrator.

Impugned judgment passed by Punjab & Haryana High Court was set aside. During conclusion of arguments, counsel for both parties mutually agreed to arbitration being conducted by a Sole Arbitrator in supersession of arbitration Clause in agreement which provided for a three-member arbitration panel. Accordingly, mandate of three-member arbitral tribunal constituted under ICA Rules stood terminated. Appeal was disposed of accordingly.


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