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Jaipur Zila Dugdh Utpadak Sahkari Sangh Ltd & Ors Vs M/S Ajay Sales & Suppliers: Disqualification Of Arbitrator U/S 12(5) Of The Act Should Be Read As Awhole, Considering The Object And Purpose Of The Amendment

Prahalad B ,
  23 September 2021       Share Bookmark

Court :
Supreme Court of India
Brief :

Citation :
Special Leave Petition (Civil) no. 13520 of 2021


Date of Judgement:

09 September 2021

Coram:
Justice M R Shah
Justice Aniruddha Bose

Parties:
Petitioners – Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited & Ors.
Respondent – M/s. Ajay Sales and Suppliers

Subject

The Amendment of 2015 to Section 12 regarding the disqualification, tries to bring neutrality of Arbitrator to promote impartial and independent arbitral proceedings. To achieve that, this Section must be read as whole keeping in mind the objects of the Section and not to confine this to the exact words mentioned in the Section.

Legal Provisions

  • Section 11 of the Arbitration and Conciliation Act, 1996 - Appointment of arbitrators.
  • Section 12(5) of the Arbitration and Conciliation Act, 1996 - 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.

Overview

  • The respondent and petitioner organisation entered into an agreement for distribution of dairy products in Jaipur. A dispute arose within the parties and it was referred to an arbitration as the contracted provided for the same. It was also provided that the arbitration shall be a referred to a sole Arbitrator who was the Chairman of the petitioner’s organisation. During the pendency of the arbitral proceeding, the respondent approached the High Court to appoint a new Arbitrator. The High Court allowed the petition and appointed a former District Judge to act as the Arbitrator.
  • Appealing against the High Court’s order, the Counsel for petitioner contended that Section 12(5) was brought into effect after the amendment in 2015 but the agreement was made prior to this. Hence, same will not apply. It was also submitted that the Seventh Schedule to be read with Section 12(5) does not mention Chairman as ineligible person as an Arbitrator.
  • The Counsel also referred to a clause in the agreement which stated that all disputes will be dealt as per the Rajasthan Cooperative Societies Act, 2001. It is herein stated that an Arbitrator shall be a Registrar. It was contended that this non obstante clauses supersede Section 12(5) of the Arbitration and Conciliation Act. It was also put forth that the High Court cannot interfere in an ongoing arbitral procedure and the aggrieved can only appeal after the award of the Arbitral Tribunal.
  • This Court believed that the contention of the petitioner had no substance. The Court held that Section 12(5) applies even to prior agreements and keeping in mind the object of this insertion the contention of the petitioner was not accepted.
  • With regard to the Rajasthan Cooperative Societies Act under Section 58, the court observed that even though it was accepted that disputes shall be resolved as per this Act, the parties went out and made an agreement to appoint a Chairman as an Arbitrator, hence the argument of the petitioner holds no merit.In view of the stated reasons, the court dismissed the petition.

Issue

  • Whether Chairman of a company, which is involved in an arbitration proceeding, is an ineligible Arbitrator under Section 12(5) of the Arbitration and Conciliation Act, 1996 to be read with Seventh Schedule?

Judgement Analysis

  • This court while referring to Voestalpine Schienen GMBH V. Delhi Metro Rail Corporation Ltd (2017) reiterated the observation of the Supreme Court, wherein the Courts examined and laid down the object and purpose of this insertion. It held that the main aim was to promote unbiased and neutral Arbitrators. An independent and impartial Arbitrator would only further the core objective of approaching an arbitration tribunal. Section 12(5) states as ‘notwithstanding any prior agreements’.This in itself acts a non obstante clause, hence there cannot be any contravention to this section.
  • The Court, while considering the ineligibility of the Chairman and the contention that there was no explicit mentioning of Chairman in the Seventh Schedule, held that the scope of the Schedule was much wider and it should be read keeping in mind the object of the amendment and it should not be constrained to the wordings in the Schedule.
  • The Arbitrator has an adjudicatory function to perform hence, it is important that he is independent and not influenced by external factors. Therefore, the meaning and scope of the Schedule cannot be limited and if the Arbitrator is found to be ineligible, the court can appoint another Arbitrator.
  • The proviso to Section 12(5) provides for parties to waive this section by a written agreement. In absence of the same the respondent can approach the Court for appointing an independent and unbiased arbitrator.

Conclusion

Independent and unbiased arbitrator is a significant characteristic of an arbitration proceeding. It is also important that the same should not be compromised. To achieve the same, the relevant law must be interpreted, keeping in mind the purpose of the law and to provide for wider scope to weed out ineligible people, who might be influenced due to the prevailing facts and circumstance for an effective delivery of an award.

Click here to download the original copy of the judgement

Questions to Analyse –

1. Can a party to an arbitration proceeding, while the proceeding is pending, approach a Court for remedy?

2. What is the object of inserting Section 12(5) in the Arbitration and Conciliation Act, 1996?

 
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