Introduction
Appointment of serving or ex-employees of a contesting party as arbitrators continues to beleaguer the entire arbitration community. Although this issue has been put to scrutiny before various Courts but it is yet to be resolved determinatively. Such appointments are questionable on account of apparently being in conflict with the sanctimonious principle of impartiality in arbitration, as the appointment of such persons as arbitrators would naturally bring a presumption of bias in favor of the party with whom they are or have been associated with. In order to ensure independence, neutrality and impartiality in the process of appointing the arbitral tribunal, Section 12(5) r/w the Seventh Schedule was introduced by way of the 2015 Amendment to the Arbitration and Conciliation Act, 1996 ("the Act"). Section 12(5) provides that any person whose relationship with either party to the dispute falls within the relationships specified under the Seventh Schedule, shall be ineligible to be appointed as an arbitrator. The first relationship specified under the Seventh Schedule which makes a person ineligible to be appointed as an arbitrator is:
"The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party."
A literal interpretation of the aforesaid excerpt makes it clear that the serving employees belonging to either party to the dispute are ineligible to be appointed as arbitrators. Therefore, the controversy regarding appointment of current employees as arbitrators is no longer res integra. However, in so far as the appointment of ex-employees is concerned, no clear guidance has been provided in the Act. Moreover, Court's interpretation of this issue has been capricious and varied. Therefore, there has been continuing conundrum surrounding the validity of arbitral clauses that require a party to choose an arbitrator from a panel comprising ex-employees of the opposite party. This article briefly discusses and analyses a few judgments passed by the Hon'ble
I.
In the
"26. It cannot be said that simply because the person is a retired officer who retired from the government or other statutory corporation or public sector undertakingand had no connection with DMRC (the party in dispute), he would be treated as ineligible to act as an arbitrator. Had this been the intention of the legislature, the Seventh Schedule would have covered such persons as well. Bias or even real likelihood of bias cannot be attributed to such highly qualified and experienced persons, simply on the ground that they served the Central Government or PSUs,even when they had no connection with DMRC. The very reason for empanelling these persons is to ensure that technical aspects of the dispute are suitably resolved by utilising their expertise when they act as arbitrators. It may also be mentioned herein that the
27.As already noted above, DMRC has now forwarded the list of all 31 persons on its panel thereby giving a very wide choice to the petitioner to nominate its arbitrator. They are not the employees or ex-employees or in any way related to DMRC. In any case, the persons who are ultimately picked up as arbitrators will have to disclose their interest in terms of amended provisions of Section 12 of the Act. We, therefore, do not find it to be a fit case for exercising our jurisdiction to appoint and constitute the
29. Some comments are also needed on Clause 9.2(a) of GCC/SCC, as per which DMRC prepares the panel of "serving or retired engineers of government departments or public sector undertakings".It is not understood as to why the panel has to be limited to the aforesaid category of persons. Keeping in view the spirit of the amended provision and in order to instil confidence in the mind of the other party, it is imperative that panel should be broad based. Apart from serving or retired engineers of government departments and public sector undertakings, engineers of prominence and high repute from private sector should also be included. Likewise, panel should comprise of persons with legal background like Judges and lawyers of repute as it 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 of accountancy, etc. Therefore, it would also be appropriate to include persons from this field as well.
30. Time has come to send positive signals to the international business community, in order to create healthy arbitration environment and conducive arbitration culture in this country. Further, as highlighted by the
While rejecting the petition filed by
In conclusion, the
- The panel of arbitrators from which the a party is required to nominate its arbitrator should not include people who are employees/ex-employees of the opposite party. (Para 27)
- The panel of arbitrators from which the a party is required to nominate its arbitrator should be a broad based panel. (Para 29 and 30)
II.
In this case, the question for consideration before the Hon'ble
"25. Contending that the appointment of retired employees as arbitrators cannot be assailed merely because an arbitrator is a retired employee of one of the parties, the learned ASG has placed reliance upon
27. By the letter dated 25-10-2018, theappellant has forwarded a list of four retired railway officers on its panel thereby giving a wide choice to the respondent to suggest any two names to be nominated as arbitrators out of which, one will be nominated as the arbitrator representing the respondent Contractor. As held in
In the Railway Electrification judgment, the Court placed heavy reliance on the
- In the
Voestalpine judgment, the Court explicitly noted that the members in the proposed panel were ex-employees of several government departments, but were neither employees/ex-employees of DMRC, nor connected with DMRC in any manner whatsoever (Para 26 and 27 of theVoestalpine judgment). On the other hand, in the Railway Electrification judgment, the Court approved the panel proposed by theRailway Department that exclusively comprised of its ex-employees. -
In the
Voestalpine judgment, the Court categorically held that a panel unilaterally prepared by a party from which the opposite party is required to nominate its arbitrator should be a broad based panel which shall comprise of people from the public as well as the private sector and should include judges, lawyers, etc. However, in the Railway Electrification judgment, the Court upheld the validity of a panel that comprised of only 4 persons who were ex-employees of the Railway Authority.
The aforementioned reasons make it apparent that the Railway Electrification judgment is in conflict with the law laid down in the
III.
In this case,
"5. In view of the disputes and differences arisen between the parties by a letter dated
In the aforesaid judgment, it is apparent that the
"Having heard Mr.
It is also noteworthy that in the aforementioned Order dated
Conclusion
The neutrality, independence and impartibility of the arbitral tribunal is imperative in the arbitral process not only to ensure fairness but also for the pronouncement of an impartial and unbiased arbitral award. In view of the above, if the arbitral clause provides for the appointment of ex-employee/s of one party to the dispute as arbitrator/s, then on account of such previous relationship, the opposite party would be discouraged from resolving the dispute through arbitration. Thus, in order to ensure fairness in the arbitral process, it is essential that ex-employees belonging to either party to the dispute should not be appointed as arbitrators. On the other hand, in so far as the appointment from panel of arbitrators is concerned, the broad-based panel, not including any serving or ex-employees of either party, proposed in the
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