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Nomination of person ineligible to be an arbitrator disallowed

By May 24, 2019 December 20th, 2019 No Comments

Bharat
Broadband Network Limited (BBNL) v. United Telecoms Limited

The Hon’ble Supreme
Court of India in the case of Bharat
Broadband Network Limited (BBNL) v. United Telecoms Limited
[1] applied
the principle set out in the case of TRF
Limited v. Energo Engineering Projects Limited
[2] (“TRF Limited Case”) and held that a
person who is ineligible to be appointed as an arbitrator under Section 12 (5) read
with the Seventh Schedule of the Arbitration and Conciliation Act, 1996, (“Act”) cannot nominate any other person
to be appointed as an arbitrator.

In the present case, the
parties referred to arbitration as provided in the general condition of
contract (“GCC”) agreed between the
parties.  The appellant, pursuant to the
aforesaid GCC, nominated Mr. S.H Khan as the sole arbitrator to adjudicate the
disputes between the parties. Relying on the judgement of the Hon’ble Supreme
Court in the TRF Limited Case, the appellant itself challenged the appointment
of the sole arbitrator and stated that since the arbitrator is de jure unable to perform his functions
as an arbitrator he should withdraw from the proceedings. However, the High
Court of Delhi rejected the petition filed by the appellant on the grounds that
the very person who appointed the arbitrator is estopped from raising a plea
that such arbitrator cannot be appointed after participating in the proceedings.

The Hon’ble Supreme
Court of India relied on mainly three judgements earlier dealt by them for
deciding the case. Firstly, the case of Voestalpine
Schienen GmbH v. Delhi Metro Rail Corporation Limited[3]

was referred by the Hon’ble Supreme Court of India as it discussed that Section
12 of the Act has been amended with the objective to induce neutrality of
arbitrators viz. their independence and impartiality.

Secondly, the case of HRD Corporation v. GAIL (India) Limited[4] was
referred by the Hon’ble Supreme Court of India as it analyzed the key
difference between the Fifth Schedule and the Seventh Schedule of the Act. The
Hon’ble Supreme Court noted that in case of ineligibility under Section 12(5)
since a person would lack inherent jurisdiction, an application may be filed
under Section 14(2) to the Court to decide on the termination of the
arbitrator’s mandate. However, a challenge under the Fifth Schedule of the Act has
to be decided under Section 13 of the Act. If a challenge under Section 13 of
the Act if not successful, the Tribunal must continue the arbitral proceeding
and make an award. It is only after such award is made, that an application for
setting aside the arbitral award on grounds of ineligibility under the Fifth
Schedule can be made by a party.

Lastly, the Hon’ble
Supreme Court relied on its judgement given in the TRF Limited Case. The main
issue for consideration in this case was whether a managing director, after
becoming ineligible by operation of law, is still eligible to nominate an
arbitrator. The Hon’ble Supreme Court held that once the arbitrator has become
ineligible by operation of law, he cannot nominate another as an arbitrator.
Therefore, the same
principle was applied to the case and the Hon’ble Supreme Court of India terminated
the appointment of Mr. S.H Khan as he had become de jure unable to perform his function as an arbitrator. Hence, the
Hon’ble Supreme Court of India upheld the principle laid down by it in the TRF
Limited Case.

[1]              2019(6)SCALE491.
[2]             (2017) 8 SCC 377.
[3]             AIR 2017 SC 939.
[4]              (2018) 12 SCC 471.

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