仲裁条款规定的仲裁员名单产生方法问题（印度案例）

更新时间：2017-12-28 11:58:14  张振安 临时仲裁ADA 编辑：lianluobu  点击次数：4571次

一、案件背景

原告A.K. Sikri, J.是一家奥地利公司，在印度设有分支机构，其主要应用先进技术从事钢铁生产业务并供应铁轨和相关产品。被告Delhi Metro Rail Corporation Ltd. (DMRC)与原告签订了一份日期为2013年8月12日铁轨供应合同。双方因合同产生争议，原告随后依据双方之间《合同一般条款》第9.2条中的仲裁条款以及《合同特别规定》第9.2条的规定提起仲裁。

《合同一般条款》第9.2条规定的仲裁程序规则如下：

（a）……应为3名仲裁员。为此，买方将提供具备必要资格和专业经历的工程师名单。该工程师名单应由“政府部门或公共部门企业”现任或离任工程师组成。

（c）对于适用三名仲裁员仲裁的争议，买方将从上述工程师名单中选出5人作为备选仲裁员名单。供应商和买方应从该5人名单中各选定一名仲裁员，该两名仲裁员将从该名单中选定第三名担任首席仲裁员。

二、案情及分析

原告在其2016年6月14日提起仲裁的函中表示：根据《1996仲裁与调解法案》（以下简称《法案》）第12（5）条及附表7第1条，如果按照上述合同条款从“政府部门或公共部门企业”现任或离任工程师组成的5人名单中选定仲裁员将会导致其选定的仲裁员为不适任的仲裁员。因此，原告选定了本院一名退休法官（名单外）为仲裁员，并请求被告的同意其选定。

被告于2016年7月8日发函中坚持按照合同仲裁条款所规定的程序，要求原告从5名工程师名单中选定一名仲裁员。被告选定了一名Indian Railway Service Of Engineers（IRSE）公司的退休官员为仲裁员，并要求原告从剩下的4名仲裁员中选定一名仲裁员。2016年8月17日，原告依据《法案》第11条向本院提出如下请求：如果被告同意原告任命的独任仲裁员，那么该仲裁员即为本案的独任仲裁员，如被告不同意原告的选定，那么该独任仲裁员应为公正独立的仲裁员人选，另外可选方案为是根据《法案》第11（6）条和第11（8）条的规定选定3名公正独立的仲裁员组成仲裁庭以裁决双方之间的争议。

对于原告的上述请求，被告表示反对并认为双方在其协议的仲裁条款中已经规定了仲裁庭的人数和仲裁员的产生方式，根据《法案》第11（6）条提出的请求不应得到支持，同时被告主张双方之间的仲裁协议有效并且可以执行，不属于《法案》第12（5）条规定的“禁止条款”，并认为其选出的工程师名单既不是DMRC的前员工，也与DMRC没有直接或间接关系，不会损害独立性和公正性。

根据双方观点，本案关键问题在于被告拟定的工程师名单是否违反了《法案》第12条的修正案规定。第12条第1款和第5款以及《法案》附表7规定了仲裁员的披露事项以及利益冲突的情形，主要涉及到以下几条（请见原文的详细规定）:

“12（1）／(a) 如与任何一方存在直接或间接的关系或利益、或曾经或现在存在关系或利益，或与争议的标的有联系，无论是业务、职业或任何其他的联系，这些极有可能产生与其独立性或公正性有关的合理怀疑；”

“（5）尽管存在相反的协议，任何人若与当事人或律师或争议标的之间的关系属于附表7中所规定的范围，则应被认为无资格被任命为仲裁员。”

附表7:仲裁员和当事人或律师的关系“1. 仲裁员是一方当事人的雇员、律师、顾问或者与该方存在或曾经存在任何其他业务关系。”

三、仲裁员的中立性

仲裁员的中立性，也就是独立性和公正性，对整个程序至关重要。《法案》在其第12（3）条中规定了中立性的标准，即“只要（a）存在可对其独立性或公正性产生合理怀疑的情形……”

该《法案》未规定任何其他条件来明确产生“合理怀疑”的情形，但明确可以存在多种情况。仲裁程序规定了独立性和公正性的最低程度，而不论双方之间的协议如何规定。例如，一个合理的法律不会允许一方当事人将其自身或其雇员（或类似于依赖当事人的任何人员）任命为仲裁员，即使双方事先已明确约定。

为引入仲裁员的中立性，即公正性和独立性，《草案》第12条作出修订，明确规定了对“公正性和独立性”产生合理怀疑的情形，只要存在其中列出的任何情形，即会导致偏见存在的合理担忧。在本案中与中立性相关的是，只要仲裁员是一方的员工、律师或顾问，或与该方曾经或现在存在业务关系，该仲裁员就会被认为不适任。

最后，DMRC拟定了一份31人员组成的工程师名单，给原告提供了一个更宽泛的仲裁员选定范围。这些工程师并不是DMRC的现任或离任员工，与DMRC不存在其他任何关系。最终被任命的仲裁员都必须根据《法案》第12条修正案的规定披露是否存在利益关系。

最终法院裁定驳回申请，原告在两周内从31人的名单中选定其仲裁员。

【案例主要内容】

IN THE SUPREME COURT OF INDIA CIVIL ORIGINALJURISDICTION (Before A.K. Sikri and R.K. Agrawal, JJ.) M/s. VoestalpineSchienen GMBH v. Delhi Metro Rail Corporation Ltd. .Arbitration Petition(Civil) No. 50 of 2016 Decided on February 10, 2017，Citation: 2017 SCC OnLine SC 172

ARBITRATION & RESOLUTION OF DISPUTES:

The Arbitration and Conciliation Act - 1996 of Indiashall be - applicable. Purchaser and the supplier shall make every necessaryeffort to resolve amicably by direct and informal negotiation any disagreementor dispute arising between them under or in connection with contract.

Arbitration: If the efforts to resolve all or any ofthe disputes through conciliation fails, then such, disputes or differences,whatsoever arising between the parties, arising but of touching or relating tosupply/manufacture, measuring operation or effect of the Contract or the breachthereof shall be referred to Arbitration, in accordance with the followingprovisions:

(a) Matters to be arbitratedupon shall be referred to a sole Arbitrator where the total value of claimsdoes not exceed Rs. 1.5 million. Beyond the claim limit of Rs. 1.5 million.Beyond the claim limit of Rs. 1.5 million, there shall be three Arbitrators.For this purpose the Purchaser will make out a panel of engineers with therequisite qualifications and professional experience. This panel will be ofserving or retired engineers “Government Departments or of Public SectorUndertakings;

(b) For the disputes to be decided by a soleArbitrator, a ‘list of three engineers taken the aforesaid panel will be sentto the supplier by the Purchaser from which the supplier will choose one;

(c) For the disputes to bedecided by three Arbitrators, the Purchaser will make out a list of fiveengineers from the aforesaid panel. The supplier and Purchaser shall choose oneArbitrator each, and the two so chosen shall choose the third Arbitrator fromthe said list, who shall act as the presiding Arbitrator;

(d) Neither party shall be limited in the proceedingsbefore such Arbitrators(s) to the evidence or the arguments put before theConciliator;

(e) The Conciliation and Arbitration hearings shall beheld in Delhi only. The language of the proceedings that of the documents andcommunications shall be English and the awards shall be made in writing. TheArbitrators shall always give item-wise and reasoned awards in all cases wherethe total claim exceeds Rs. One million; and

(f) The award of the sole Arbitrator or the award bymajority of three Arbitrators as the case may be and shall be binding on allparties.”

14. From the stand taken by the respective parties andnoted above, it becomes clear that the moot question is as to whether panel ofarbitrators prepared by the respondent violates the amended provisions ofSection 12 of the Act. Sub-section (1) and sub-section (5) of Section 12 aswell as Seventh Schedule to the Act which are relevant for our purposes, may bereproduced below.

“Section12(1), the following sub-section shall be substituted, namely:—

“(1) When a person is approached in connection with hispossible appointment as an arbitrator, he shall disclose in writing anycircumstances,—

(a) such as the existence either direct or indirect,of any past or present relationship with or interest in any of the parties orin relation to the subject-matter in dispute, whether financial, business,professional or other kind, which is likely to give rise to justifiable doubtsas to his independence or impartiality; and

(b) which are likely to affect his ability to devotesufficient time to the arbitration and in particular his ability to completethe entire arbitration within a period of twelve months.

Explanation 1.—The grounds stated in the FifthSchedule shall guide in determining whether circumstances exist which give riseto justifiable doubts as to the independence or impartiality of an arbitrator.

Explanation 2.—The disclosure shall be made by suchperson in the form specified in the Sixth Schedule.”;

(ii) after sub-section (4), the following sub-sectionshall be inserted, namely:—

“(5) Notwithstanding any prior agreement to thecontrary, any person whose relationship, with the parties or counsel or thesubject-matter of the dispute, falls under any of the categories specified inthe Seventh Schedule shall be ineligible to be appointed as an arbitrator:

Provided that parties may, subsequent to disputeshaving arisen between them, waive the applicability of this sub-section by anexpress agreement in writing.

THE SEVENTH SCHEDULE

Arbitrator's relationship with the parties or counsel

1. The arbitrator is an employee, consultant, advisoror has any other past or present business relationship with a party.

2. The arbitrator currently represents or advises oneof the parties or an affiliate of one of the parties.

3. The arbitrator currently represents the lawyer orlaw firm acting as counsel for one of the parties.

4. The arbitrator is a lawyer in the same law firmwhich is representing one of the parties.

5. The arbitrator is a manager, director or part ofthe management, or has a similar controlling influence, in an affiliate of oneof the parties if the affiliate is directly involved in the matters in disputein the arbitration.

6. The arbitrator's law firm had a previous butterminated involvement in the case without the arbitrator being involvedhimself or herself.

7. The arbitrator's law firm currently has asignificant commercial relationship with one of the parties or an affiliate ofone of the parties.

8. The arbitrator regularly advises the appointingparty or an affiliate of the appointing party even though neither thearbitrator nor his or her firm derives a significant financial incometherefrom.

9. The arbitrator has a close family relationship withone of the parties and in the case of companies with the persons in the managementand controlling the company.

10. A close family member of the arbitrator has asignificant financial interest in one of the parties or an affiliate of one ofthe parties.

11. The arbitrator is a legal representative of anentity that is a party in the arbitration.

12. The arbitrator is a manager, director or part ofthe management, or has a similar controlling influence in one of the parties.

13. The arbitrator has a significant financialinterest in one of the parties or the outcome of the case.

14. The arbitrator regularly advises the appointingparty or an affiliate of the appointing party, and the arbitrator or his or herfirm derives a significant financial income therefrom.

Relationship of the arbitrator to the dispute

15. The arbitrator has given legal advice or providedan expert opinion on the dispute to a party or an affiliate of one of theparties.

16. The arbitrator has previous involvement in thecase.

Arbitrator's direct or indirect interest in thedispute

17. The arbitrator holds shares, either directly orindirectly, in one of the parties or an affiliate of one of the parties that isprivately held.

18. A close family member of the arbitrator has asignificant financial interest in the outcome of the dispute.

19. The arbitrator or a close family member of thearbitrator has a close relationship with a third party who may be liable torecourse on the part of the unsuccessful party in the dispute.

Explanation 1.—The term “close family member” refersto a spouse, sibling, child, parent or life partner.

Explanation 2.—The term “affiliate” encompasses allcompanies in one group of companies including the parent company.

Explanation 3.—For the removal of doubts, it isclarified that it may be the practice in certain specific kinds of arbitration,such as maritime or commodities arbitration, to draw arbitrators from a small,specialized pool. If in such fields it is the custom and practice for partiesfrequently to appoint the same arbitrator in different cases, this is arelevant fact to be taken into account while applying the rules set outabove.’.”

15. It is a well known fact that the Arbitration andConciliation Act, 1996 was enacted to consolidate and amend the law relating todomestic arbitration, inter alia, commercial arbitration and enforcement offoreign arbitral awards etc. It is also an accepted position that whileenacting the said Act, basic structure of UNCITRAL Model Law was kept in mind.This became necessary in the wake of globalization and the adoption of policyof liberlisation of Indian economy by the Government of India in the early 90s.This model law of UNCITRAL provides the framework in order to achieve, to themaximum possible extent, uniform approach to the international commercialarbitration. Aim is to achieve convergence in arbitration law and avoidconflicting or varying provisions in the arbitration Acts enacted by variouscountries. Due to certain reasons, working of this Act witnessed someunpleasant developments and need was felt to smoothen out the rough edges encounteredthereby. The Law Commission examined various shortcomings in the working ofthis Act and in its first Report, i.e, 176th Report made various suggestionsfor amending certain provisions of the Act. This exercise was again done by theLaw Commission of India in its Report No. 246 in August, 2004 suggestingsweeping amendments touching upon various facets and acting upon most of theserecommendations, Arbitration Amendment Act of 2015 was passed which came intoeffect from October 23, 2015.

16. Apart from other amendments, Section 12 was alsoamended and the amended provision has already been reproduced above. Thisamendment is also based on the recommendation of the Law Commission whichspecifically dealt with the issue of ‘neutrality of arbitrators’ and adiscussion in this behalf is contained in paras 53 to 60 and we would like toreproduce the entire discussion hereinbelow:

“NEUTRALITY OF ARBITRATORS

53. It is universally accepted that any quasi-judicialprocess, including the arbitration process, must be in accordance withprinciples of natural justice. In the context of arbitration, neutrality ofarbitrators, viz. their independence and impartiality, is critical to theentire process.

54. In the Act, the test for neutrality is set out insection 12(3) which provides - “An arbitrator may be challenged only if (a)circumstances exist that give rise to justifiable doubts as to his independenceor impartiality…”

55. The Act does not lay down any other conditions toidentify the “circumstances” which give rise to “justifiable doubts”, and it isclear that there can be many such circumstances and situations. The test is notwhether, given the circumstances, there is any actual bias for that is settingthe bar too high; but, whether the circumstances in question give rise to anyjustifiable apprehensions of bias.

56. The limits of this provision has been tested inthe Indian Supreme Court in the context of contracts with State entities namingparticular persons/designations (associated with that entity) as a potentialarbitrator. It appears to be settled by a series of decisions of the SupremeCourt (See Executive Engineer, Irrigation Division, Puri v. Gangaram Chhapolia,(1984) 3 SCC 627;Secretary to Government Transport Department, Madras v.Munusamy Mudaliar,1988 Supp SCC 651; International Authority of India v. K.D.Bali, (1988) 2 SCC 360;S. Rajan v. State of Kerala, (1992) 3 SCC 608; IndianDrugs & Pharmaceuticals v.Indo-Swiss Synthetics Germ Manufacturing Co.Ltd., (1996) 1 SCC 54; Union of India v. M.P. Gupta, (2004) 10 SCC 504; AcePipeline Contract Pvt. Ltd. v. Bharat Petroleum Corporation Ltd., (2007) 5 SCC304) that arbitration agreements in government contracts which provide forarbitration by a serving employee of the department, are valid and enforceable.While the Supreme Court, in Indian Oil Corp. Ltd. v. Raja Transport (P) Ltd.,(2009) 8 SCC 520 carved out a minor exception in situations when the arbitrator“was the controlling or dealing authority in regard to the subject contract orif he is a direct subordinate (as contrasted from an officer of an inferiorrank in some other department) to the officer whose decision is the subjectmatter of the dispute”, and this exception was used by the Supreme Court inDenel Propreitory Ltd. v. Govt. of India, Ministry of Defence, (2012) 2 SCC 759: AIR 2012 SC 817 and Bipromasz Bipron Trading SA v. Bharat Electronics Ltd.,(2012) 6 SCC 384, to appoint an independent arbitrator under section 11, thisis not enough.

57. The balance between procedural fairness andbinding nature of these contracts, appears to have been tilted in favour of thelatter by the Supreme Court, and the Commission believes the present positionof law is far from satisfactory. Since the principles of impartiality andindependence cannot be discarded at any stage of the proceedings, specificallyat the stage of constitution of the arbitral tribunal, it would be incongruousto say that party autonomy can be exercised in complete disregard of theseprinciples - even if the same has been agreed prior to the disputes havingarisen between the parties. There are certain minimum levels of independenceand impartiality that should be required of the arbitral process regardless ofthe parties' apparent agreement. A sensible law cannot, for instance, permitappointment of an arbitrator who is himself a party to the dispute, or who isemployed by (or similarly dependent on) one party, even if this is what theparties agreed.The Commission hastens to add that Mr. PK Malhotra, the exofficio member of the Law Commission suggested having an exception for theState, and allow State parties to appoint employee arbitrators. The Commissionis of the opinion that, on this issue, there cannot be any distinction betweenState and non-State parties. The concept of party autonomy cannot be stretchedto a point where it negates the very basis of having impartial and independentadjudicators for resolution of disputes. In fact, when the party appointing anadjudicator is the State, the duty to appoint an impartial and independentadjudicator is that much more onerous - and the right to natural justice cannotbe said to have been waived only on the basis of a “prior” agreement betweenthe parties at the time of the contract and before arising of the disputes.

58. Large scale amendments have been suggested toaddress this fundamental issue of neutrality of arbitrators, which theCommission believes is critical to the functioning of the arbitration processin India. In particular, amendments have been proposed to sections 11, 12 and14 of the Act.

59. The Commission has proposed the requirement ofhaving specific disclosures by the arbitrator, at the stage of his possibleappointment, regarding existence of any relationship or interest of any kindwhich is likely to give rise to justifiable doubts. The Commission has proposedthe incorporation of the Fourth Schedule, which has drawn from the Red andOrange lists of the IBA Guidelines on Conflicts of Interest in InternationalArbitration, and which would be treated as a “guide” to determine whethercircumstances exist which give rise to such justifiable doubts. On the otherhand, in terms of the proposed section 12(5) of the Act and the Fifth Schedulewhich incorporates the categories from the Red list of the IBA Guidelines (asabove), the person proposed to be appointed as an arbitrator shall beineligible to be so appointed, notwithstanding any prior agreement to thecontrary. In the event such an ineligible person is purported to be appointedas an arbitrator, he shall be de jure deemed to be unable to perform hisfunctions, in terms of the proposed explanation to section 14. Therefore, whilethe disclosure is required with respect to a broader list of categories (as setout in the Fourth Schedule, and as based on the Red and Orange lists of the IBAGuidelines), the ineligibility to be appointed as an arbitrator (and theconsequent de jure inability to so act) follows from a smaller and more serioussub-set of situations (as set out in the Fifth Schedule, and as based on theRed list of the IBA Guidelines).

60. The Commission, however, feels that real andgenuine party autonomy must be respected, and, in certain situations, partiesshould be allowed to waive even the categories of ineligibility as set in theproposed Fifth Schedule. This could be in situations of family arbitrations orother arbitrations where a person commands the blind faith and trust of theparties to the dispute, despite the existence of objective “justifiable doubts”regarding his independence and impartiality. To deal with such situations, theCommission has proposed the proviso to section 12(5), where parties may,subsequent to disputes having arisen between them, waive the applicability ofthe proposed section 12(5) by an express agreement in writing. In all othercases, the general rule in the proposed section 12(5) must be followed. In theevent the High Court is approached in connection with appointment of anarbitrator, the Commission has proposed seeking the disclosure in terms ofsection 12(1) and in which context the High Court or the designate is to have“due regard” to the contents of such disclosure in appointing the arbitrator.”

17. We may put a note of clarification here. Though,the Law Commission discussed the aforesaid aspect under the heading “Neutralityof Arbitrators”, the focus of discussion was on impartiality and independenceof the arbitrators which has relation to or bias towards one of the parties. Inthe field of international arbitration, neutrality is generally related to thenationality of the arbitrator. In international sphere, the ‘appearance ofneutrality’ is considered equally important, which means that an arbitrator isneutral if his nationality is different from that of the parties. However, thatis not the aspect which is being considered and the term ‘neutrality’ used isrelatable to impartiality and independence of the arbitrators, without any biastowards any of the parties. In fact, the term ‘neutrality of arbitrators’ iscommonly used in this context as well.

18. Keeping in mind the afore-quoted recommendation ofthe Law Commission, with which spirit, Section 12 has been amended by theAmendment Act, 2015, it is manifest that the main purpose for amending theprovision was to provide for neutrality of arbitrators. In order to achievethis, sub-section (5) of Section 12 lays down that notwithstanding any prioragreement to the contrary, any person whose relationship with the parties orcounsel or the subject matter of the dispute falls under any of the categoriesspecified in the Seventh Schedule, he shall be ineligible to be appointed as anarbitrator. In such an eventuality, i.e., when the arbitration clause findsfoul with the amended provisions extracted above, the appointment of anarbitrator would be beyond pale of the arbitration agreement, empowering thecourt to appoint such arbitrator(s) as may be permissible. That would be theeffect ofnon-obstante clause contained in sub-section (5) of Section 12 and theother party cannot insist on appointment of the arbitrator in terms ofarbitration agreement.

19. We may mention here that there are number ofjudgments of this Court even prior to the amendment of Section 12 where courtshave appointed the arbitrators, giving a go-by to the agreed arbitration clausein certain contingencies and situations, having regards to the provisions ofunamended Section 11(8) of the Act which, inter alia, provided that whileappointing the arbitrator, Chief Justice, or the person or the institutiondesignated by him, shall have regard to the other conditions as are likely tosecure the appointment of an independent and impartial arbitrator. See DatarSwitchgears Ltd. v. Tata Finance Ltd.1, Punj Lloyd Ltd. v. Petronet MHB Ltd.2,Union of India v. Bharat Battery Manufacturing Co. (P) Ltd.3, Deep TradingCo.v. Indian Oil Corporation4, Union of India v. Singh Builders Syndicate5 andNorthern Eastern Railway v. Tripple Engineering Works6. Taking note of theaforesaid judgments, this Court in Union of India v. Uttar Pradesh State BridgeCorporation Limited7 summed up the position in the following manner:

13. No doubt, ordinarily that would be the position.The moot question, however, is as to whether such a course of action has to benecessarily adopted by the High Court in all cases, while dealing with anapplication under Section 11 of the Act or is there room for play in the jointsand the High Court is not divested of exercising discretion under somecircumstances? If yes, what are those circumstances? It is this very aspectwhich was specifically dealt with by this Court in Tripple Engg. Works [NorthEastern Railway v. Tripple Engg. Works, (2014) 9 SCC 288 : (2014) 5 SCC (Civ)30]. Taking note of various judgments, the Court pointed out that the notionthat the High Court was bound to appoint the arbitrator as per the contractbetween the parties has seen a significant erosion in recent past. In paras 6and 7 of the said decision, those judgments wherein departure from theaforesaid “classical notion” has been made are taken note of. It would,therefore, be useful to reproduce the said paragraph along with paras 8 and 9hereinbelow: (SCC pp. 291-93)

“6. The ‘classical notion’ that the High Court whileexercising its power under Section 11 of the Arbitration and Conciliation Act,1996 (hereinafter for short ‘the Act’) must appoint the arbitrator as per thecontract between the parties saw a significant erosion in ACE PipelineContracts (P) Ltd. v. Bharat Petroleum Corpn. Ltd. [(2007) 5 SCC 304], whereinthis Court had taken the view that though the contract between the parties mustbe adhered to, deviations therefrom in exceptional circumstances would bepermissible. A more significant development had come in a decision thatfollowed soon thereafter in Union of India v. Bharat Battery Mfg. Co. (P) Ltd.[(2007) 7 SCC 684] wherein following a three-Judge Bench decision in Punj LloydLtd. v.Petronet MHB Ltd. [Punj Lloyd Ltd. v. Petronet MHB Ltd., (2006) 2 SCC638], it was held that once an aggrieved party files an application underSection 11(6) of the Act to the High Court, the opposite party would lose itsright of appointment of the arbitrator(s) as per the terms of the contract. Theimplication that the Court would be free to deviate from the terms of thecontract is obvious.

7. The apparent dichotomy in ACE Pipeline [(2007) 5SCC 304] and Bharat Battery Mfg. Co. (P) Ltd. [(2007) 7 SCC 684] was reconciledby a three-Judge Bench of this Court in Northern Railway Admn., Ministry ofRailway v. Patel Engg. Co. Ltd. [Northern Railway Admn., Ministry of Railway v.Patel Engg. Co. Ltd., (2008) 10 SCC 240], wherein the jurisdiction of the HighCourt under Section 11(6) of the Act was sought to be emphasised by taking intoaccount the expression ‘to take the necessary measure’ appearing in sub-section(6) of Section 11 and by further laying down that the said expression has to beread along with the requirement of sub-section (8) of Section 11 of the Act.The position was further clarified in Indian Oil Corpn. Ltd. v. Raja Transport(P) Ltd.[(2009) 8 SCC 520 : (2009) 3 SCC (Civ) 460] Para 48 of the Reportwherein the scope of Section 11 of the Act was summarised may be quoted byreproducing sub-paras (vi) and (vii) hereinbelow: (Indian Oil case [(2009) 8SCC 520 : (2009) 3 SCC (Civ) 460], SCC p. 537)

‘48. (vi) The Chief Justice or his designate whileexercising power under sub-section (6) of Section 11 shall endeavour to giveeffect to the appointment procedure prescribed in the arbitration clause.

(vii) If circumstances exist, giving rise tojustifiable doubts as to the independence and impartiality of the personnominated, or if other circumstances warrant appointment of an independentarbitrator by ignoring the procedure prescribed, the Chief Justice or hisdesignate may, for reasons to be recorded, ignore the designated arbitrator andappoint someone else.’

8. The above discussion will not be complete withoutreference to the view of this Court expressed in Union of India v. SinghBuilders Syndicate [Union of India v. Singh Builders Syndicate, (2009) 4 SCC523 : (2009) 2 SCC (Civ) 246], wherein the appointment of a retired Judgecontrary to the agreement requiring appointment of specified officers was heldto be valid on the ground that the arbitration proceedings had not concludedfor over a decade making a mockery of the process. In fact, in para 25 of theReport in Singh Builders Syndicate [Union of India v. Singh Builders Syndicate,(2009) 4 SCC 523 : (2009) 2 SCC (Civ) 246] this Court had suggested that theGovernment, statutory authorities and government companies should considerphasing out arbitration clauses providing for appointment of serving officersand encourage professionalism in arbitration.

9. A pronouncement of late in Deep Trading Co. v.Indian Oil Corpn.[(2013) 4 SCC 35 : (2013) 2 SCC (Civ) 449] followed the legalposition laid down in Punj Lloyd Ltd. [Punj Lloyd Ltd. v. Petronet MHB Ltd.,(2006) 2 SCC 638] which in turn had followed a two-Judge Bench decision inDatar Switchgears Ltd. v. Tata Finance Ltd. [(2000) 8 SCC 151] The theory offorfeiture of the rights of a party under the agreement to appoint itsarbitrator once the proceedings under Section 11(6) of the Act had commencedcame to be even more formally embedded in Deep Trading Co. [(2013) 4 SCC 35 :(2013) 2 SCC (Civ) 449] subject, of course, to the provisions of Section 11(8),which provision in any event, had been held in Northern Railway Admn. [NorthernRailway Admn., Ministry of Railway v. Patel Engg. Co. Ltd., (2008) 10 SCC 240]not to be mandatory, but only embodying a requirement of keeping the same inview at the time of exercise of jurisdiction under Section 11(6) of the Act.”

(emphasis in original)

14. Speedy conclusion of arbitration proceedingshardly needs to be emphasised. It would be of some interest to note that inEngland also, Modern Arbitration Law on the lines of UNCITRAL Model Law, cameto be enacted in the same year as the Indian law which is known as the EnglishArbitration Act, 1996 and it became effective from 31-1-1997. It is treated asthe most extensive statutory reform of the English arbitration law. Commentingupon the structure of this Act, Mustill and Boyd in their CommercialArbitration, 2001 companion volume to the 2nd Edn., have commented that thisAct is founded on four pillars. These pillars are described as:

(a) The first pillar: Three general principles.

(b) The second pillar: The general duty of theTribunal.

(c) The third pillar: The general duty of the parties.

(d) The fourth pillar: Mandatory and semi-mandatoryprovisions.

Insofar as the first pillar is concerned, it containsthree general principles on which the entire edifice of the said Act isstructured. These principles are mentioned by an English Court in its judgmentin Deptt. of Economics, Policy and Development of the City of Moscow v. BankersTrust Co. [2005 QB 207 : (2004) 3 WLR 533 : (2004) 4 All ER 746 : 2004 EWCA Civ314] In that case, Mance, L.J. succinctly summed up the objective of this Actin the following words: (QB p. 228, para 31)

“31. … Parliament has set out, in the Arbitration Act,1996, to encourage and facilitate a reformed and more independent, as well asprivate and confidential, system of consensual dispute resolution, with onlylimited possibilities of court involvement where necessary in the interests ofthe public and of basic fairness.”

Section 1 of the Act sets forth the three mainprinciples of arbitration law viz. (i) speedy, inexpensive and fair trial by animpartial tribunal; (ii) party autonomy; and (iii) minimum court intervention.This provision has to be applied purposively. In case of doubt as to themeaning of any provision of this Act, regard should be had to these principles.

15. In the book O.P. Malhotra on the Law and Practiceof Arbitration and Conciliation (3rd Edn. revised by Ms. Indu Malhotra), it is rightlyobserved that the Indian Arbitration Act is also based on the aforesaid fourfoundational pillars.

16. First and paramount principle of the first pillaris “fair, speedy and inexpensive trial by an Arbitral Tribunal”. Unnecessarydelay or expense would frustrate the very purpose of arbitration.Interestingly, the second principle which is recognised in the Act is the partyautonomy in the choice of procedure. This means that if a particular procedureis prescribed in the arbitration agreement which the parties have agreed to,that has to be generally resorted to. It is because of this reason, as a normalpractice, the court will insist the parties to adhere to the procedure to whichthey have agreed upon. This would apply even while making the appointment ofsubstitute arbitrator and the general rule is that such an appointment of asubstitute arbitrator should also be done in accordance with the provisions ofthe original agreement applicable to the appointment of the arbitrator at theinitial stage. [See Yashwith Constructions (P) Ltd. v. Simplex Concrete PilesIndia Ltd. [(2006) 6 SCC 204] However, this principle of party autonomy in thechoice of procedure has been deviated from in those cases where one of theparties have committed default by not acting in accordance with the procedureprescribed. Many such instances where this course of action is taken and theCourt appoint the arbitrator when the persona designata has failed to act, aretaken note of in paras 6 and 7 of Tripple Engg. Works [North Eastern Railway v.Tripple Engg. Works, (2014) 9 SCC 288 : (2014) 5 SCC (Civ) 30]. We areconscious of the fact that these were the cases where appointment of theindependent arbitrator made by the Court in exercise of powers under Section 11of account of “default procedure”. We are, in the present case, concerned withthe constitution of substitute Arbitral Tribunal where earlier ArbitralTribunal has failed to perform. However, the above principle of defaultprocedure is extended by this Court in such cases as well as is clear from thejudgment in Singh Builders Syndicate [Union of India v. Singh BuildersSyndicate, (2009) 4 SCC 523 : (2009) 2 SCC (Civ) 246].

17. In the case of contracts between governmentcorporations/State-owned companies with private parties/contractors, the termsof the agreement are usually drawn by the government company or public sectorundertakings. Government contracts have broadly two kinds of arbitrationclauses, first where a named officer is to act as sole arbitrator; and second,where a senior officer like a Managing Director, nominates a designated officerto act as the sole arbitrator. No doubt, such clauses which give the Governmenta dominant position to constitute the Arbitral Tribunal are held to be valid.At the same time, it also casts an onerous and responsible duty upon thepersona designata to appoint such persons/officers as the arbitrators who arenot only able to function independently and impartially, but are in a positionto devote adequate time in conducting the arbitration. If the Government hasnominated those officers as arbitrators who are not able to devote time to thearbitration proceedings or become incapable of acting as arbitrators because offrequent transfers, etc., then the principle of “default procedure” at least inthe cases where Government has assumed the role of appointment of arbitratorsto itself, has to be applied in the case of substitute arbitrators as well andthe Court will step in to appoint the arbitrator by keeping aside the procedurewhich is agreed to between the parties. However, it will depend upon the factsof a particular case as to whether such a course of action should be taken ornot. What we emphasise is that Court is not powerless in this regard.”

20. Independence and impartiality of the arbitratorare the hallmarks of any arbitration proceedings. Rule against bias is one ofthe fundamental principles of natural justice which applied to all judicial andquasi judicial proceedings. It is for this reason that notwithstanding the factthat relationship between the parties to the arbitration and the arbitratorsthemselves are contractual in nature and the source of an arbitrator'sappointment is deduced from the agreement entered into between the parties,notwithstanding the same non-independence and non-impartiality of sucharbitrator (though contractually agreed upon) would render him ineligible toconduct the arbitration. The genesis behind this rational is that even when anarbitrator is appointed in terms of contract and by the parties to thecontract, he is independent of the parties. Functions and duties require him torise above the partisan interest of the parties and not to act in, or so as tofurther, the particular interest of either parties. After all, the arbitrator hasadjudicatory role to perform and, therefore, he must be independent of partiesas well as impartial. The United Kingdom Supreme Court has beautifullyhighlighted this aspect in Jivraj v. Hashwani8in the following words:

“the dominant purpose of appointing an arbitrator isthe impartial resolution of dispute between the parties in accordance with theterms of the agreement and, although the contract between the parties and thearbitrators would be a contract for the provision of personal services, they werenot personal services under the direction of the parties.”

21. Similarly, Cour de cassation, France, in ajudgment delivered in 1972 in the case of Consorts Ury9, underlined that “anindependent mind is indispensable in the exercise of judicial power, whateverthe source of that power may be, and it is one of the essential qualities of anarbitrator.”

22. Independence and impartiality are two differentconcepts. An arbitrator may be independent and yet, lack impartiality, or viceversa. Impartiality, as is well accepted, is a more subjective concept ascompared to independence. Independence, which is more an objective concept,may, thus, be more straightforwardly ascertained by the parties at the outsetof the arbitration proceedings in light of the circumstances disclosed by thearbitrator, while partiality will more likely surface during the arbitrationproceedings.

23. It also cannot be denied that the Seventh Scheduleis based on IBA guidelines which are clearly regarded as a representation ofinternational based practices and are based on statutes, case law and juristicopinion from a cross-section on jurisdiction. It is so mentioned in theguidelines itself.

24. Keeping in view the aforesaid parameters, weadvert to the facts of this case. Various contingencies mentioned in theSeventh Schedule render a person ineligible to act as an arbitrator. Entry no.1 is highlighted by the learned counsel for the petitioner which provides thatwhere the arbitrator is an employee, consultant, advisor or has any other pastor present business relationship with the party, would not act as anarbitrator. What was argued by the learned senior counsel for the petitionerwas that the panel of arbitrators drawn by the respondent consists of thosepersons who are government employees or ex-government employees. However, thatby itself may not make such persons ineligible as the panel indicates thatthese are the persons who have worked in the railways under the CentralGovernment or Central Public Works Department or public sector undertakings.They cannot be treated as employee or consultant or advisor of the respondent -DMRC. If this contention of the petitioner is accepted, then no person who hadearlier worked in any capacity with the Central Government or other autonomousor public sector undertakings, would be eligible to act as an arbitrator evenwhen he is not even remotely connected with the party in question, like DMRC inthis case. The amended provision puts an embargo on a person to act as anarbitrator, who is the employee of the party to the dispute. It also deprives aperson to act as an arbitrator if he had been the consultant or the advisor orhad any past or present business relationship with DMRC. No such case is madeout by the petitioner.

25. Section 12 has been amended with the objective toinduce neutrality of arbitrators, viz., their independence and impartiality.The amended provision is enacted to identify the ‘circumstances’ which giverise to ‘justifiable doubts’ about the independence or impartiality of thearbitrator. If any of those circumstances as mentioned therein exists, it willgive rise to justifiable apprehension of bias. The Fifth Schedule to the Actenumerates the grounds which may give rise to justifiable doubts of thisnature. Likewise, Seventh Schedule mentions those circumstances which wouldattract the provisions of sub-section (5) of Section 12 and nullify any prioragreement to the contrary. In the context of this case, it is relevant tomention that only if an arbitrator is an employee, a consultant, an advisor orhas any past or present business relationship with a party, he is renderedineligible to act as an arbitrator. Likewise, that person is treated asincompetent to perform the role of arbitrator, who is a manager, director orpart of the management or has a single controlling influence in an affiliate ofone of the parties if the affiliate is directly involved in the matters indispute in the arbitration. Likewise, persons who regularly advised theappointing party or affiliate of the appointing party are incapacitated. Acomprehensive list is enumerated in Schedule 5 and Schedule 7 and admittedlythe persons empaneled by the respondent are not covered by any of the items inthe said list.

26. It cannot be said that simply because the personis retired officer who retired from the government or other statutorycorporation or public sector undertaking and had no connection with DMRC (partyin dispute), he would be treated as ineligible to act as an arbitrator. Hadthis been the intention of the legislature, the Seventh Schedule would havecovered such persons as well. Bias or even real likelihood of bias cannot beattributed to such highly qualified and experienced persons, simply on theground that they served the Central Government or PSUs, even when they had noconnection with DMRC. The very reason for empaneling these persons is to ensurethat technical aspects of the dispute are suitably resolved by utilising theirexpertise when they act as arbitrators. It may also be mentioned herein thatthe Law Commission had proposed the incorporation of the Schedule which wasdrawn from the red and orange list of IBA guidelines on conflict of interest ininternational arbitration with the observation that the same would be treatedas the guide ‘to determine whether circumstances exist which give rise to suchjustifiable doubts’. Such persons do not get covered by red or orange list ofIBA guidelines either.

27. As already noted above, DMRC has now forwarded thelist of all 31 persons on its panel thereby giving a very wide choice to thepetitioner to nominate its arbitrator. They are not the employees orex-employees or in any way related to the DMRC. In any case, the persons whoare ultimately picked up as arbitrators will have to disclose their interest interms of amended provisions of Section 12 of the Act. We, therefore, do notfind it to be a fit case for exercising our jurisdiction to appoint andconstitute the arbitral tribunal.

28. Before we part with, we deem it necessary to make certaincomments on the procedure contained in the arbitration agreement forconstituting the arbitral tribunal. Even when there are number of personsempaneled, discretion is with the DMRC to pick five persons therefrom andforward their names to the other side which is to select one of these fivepersons as its nominee (Though in this case, it is now done away with). Notonly this, the DMRC is also to nominate its arbitrator from the said list.Above all, the two arbitrators have also limited choice of picking upon thethird arbitrator from the very same list, i.e., from remaining three persons.This procedure has two adverse consequences. In the first place, the choicegiven to the opposite party is limited as it has to choose one out of the fivenames that are forwarded by the other side. There is no free choice to nominatea person out of the entire panel prepared by the DMRC. Secondly, with thediscretion given to the DMRC to choose five persons, a room for suspicion iscreated in the mind of the other side that the DMRC may have picked up its ownfavourites. Such a situation has to be countenanced. We are, therefore, of theopinion that sub-clauses (b) & (c) of clause 9.2 of SCC need to be deletedand instead choice should be given to the parties to nominate any person fromthe entire panel of arbitrators. Likewise, the two arbitrators nominated by theparties should be given full freedom to choose third arbitrator from the wholepanel.

29. Some comments are also needed on the clause 9.2(a)of the GCC/SCC, as per which the DMRC prepares the panel of ‘serving or retiredengineers of government departments or public sector undertakings’. It is notunderstood as to why the panel has to be limited to the aforesaid category ofpersons. Keeping in view the spirit of the amended provision and in order toinstil confidence in the mind of the other party, it is imperative that panelshould be broad based. Apart from serving or retired engineers of governmentdepartments and public sector undertakings, engineers of prominence and highrepute from private sector should also be included. Likewise panel shouldcomprise of persons with legal background like judges and lawyers of repute asit is not necessary that all disputes that arise, would be of technical nature.There can be disputes involving purely or substantially legal issues, that too,complicated in nature. Likewise, some disputes may have the dimension ofaccountancy etc. Therefore, it would also be appropriate to include personsfrom this field as well.

30. Time has come to send positive signals to theinternational business community, in order to create healthy arbitrationenvironment and conducive arbitration culture in this country. Further, ashighlighted by the Law Commission also in its report, duty becomes more onerousin Government contracts, where one of the parties to dispute is the Governmentor public sector undertaking itself and the authority to appoint the arbitratorrests with it. In the instant case also, though choice is given by DMRC to theopposite party but it is limited to choose an arbitrator from the panelprepared by the DMRC. It, therefore, becomes imperative to have a much broadbased panel, so that there is no misapprehension that principle of impartialityand independence would be discarded at any stage of the proceedings, speciallyat the stage of constitution of the arbitral tribunal. We, therefore, directthat DMRC shall prepare a broad based panel on the aforesaid lines, within aperiod of two months from today.

31. Subject to the above, insofar as present petitionis concerned, we dismiss the same, giving two weeks' time to the petitioner tonominate its arbitrator from the list of 31 arbitrators given by the respondentto the petitioner.

32. No costs.