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SUPREME COURT OF INDIA
R.F. Nariman, Sanjay Kishan Kaul, JJ.
HRD Corporation (Marcus Oil and Chemical Division) – Appellants
Versus
Gail (India) Limited (Formerly Gas Authority of India Ltd.) – Respondents
Civil Appeal No. 11126 Of 2017 (Arising Out of S.L.P. (C) No. 20679 of 2017) With Civil Appeal No. 11127 of 2017 (Arising Out of S.L.P. (C) No. 20675 of 2017)
Decided On : 31-08-2017
(b) Arbitration and Conciliation Act, 1996 – Fifth and Seventh Schedule – Independence and impartiality of arbitrators – Items 1 to 19 common in both schedules – Grounds of challenge to arbitral award – Public policy limited to "fundamental policy of Indian law" and "justice or morality". (Para 18)
(2017) 4 SCC 665; (1994) Supp (1) SCC 644 – Relied upon
(2003) 5 SCC 705; (2014) 9 SCC 263; (2015) 3 SCC 49 – Referred
(c) Arbitration and Conciliation Act, 1996 – Sections 34 and 48 – Award in international commercial arbitration – Challenge to – Section 34 and 48 apply – Award governed by Part I can however be challenged on ground of patent illegality – Merely an erroneous application of the law or a re-appreciation of evidence will not amount to patent illegality. (Para 19)
(d) Interpretation of statute – Fifth and Seventh schedules, Arbitration and Conciliation Act, 1996 – Grounds of challenge narrowed down – Does not warrant construction of items in most expansive manner – It is required to take a broad common-sensical approach – The words should neither be enlarged or restricted unduly. (Para 20)
(e) Arbitration and Conciliation Act, 1996 – Seventh Schedule – Item 1 r/w 2, 8, 14 and 15 – An arbitrator to be disqualified must be an "advisor" albeit regularly concerning business of a party – Giving one-time legal advice cannot make a person an advisor – Instantly, Justice Lahoti has given only one professional (legal) opinion to GAIL in 2014 in a matter not connected with present dispute – Not disqualified under Item 1. (Para 22)
(f) Arbitration and Conciliation Act, 1996 – Seventh Schedule – Item 16 and Explanation 3 – An arbitrator rendering award in previous arbitration cannot become ineligible for subsequent arbitration on the ground of reasonable likelihood of bias – Justice Doabia held not disqualified. (Para 25, 32)
[2017] 1 W.L.R. 2280; (2000) 1 All E.R. 65 – Referred
Facts of the case:
The respondent, GAIL (India), issued a notice inviting tenders for supply of wax generated at GAIL's plant at Pata, Uttar Pradesh for a period of 20 years on an exclusive basis. The appellant successfully tendered for the said contract and the parties entered into an agreement dated April 1, 1999. Disputes arose between the parties, the appellant claiming that GAIL had wrongfully withheld supplies of wax, as a result of which the appellant invoked the arbitration clause included in the agreement.
In all four arbitrations have been held: for the period 2004-2007, 2007-2010, 2010-2013 and 2016 to 2019.
For the last arbitration initially, the appellant nominated Justice K. Ramamoorthy as its arbitrator. The respondent appointed Justice Doabia, and Justice Doabia and Justice K. Ramamoorthy appointed Justice K.K. Lahoti to be the presiding arbitrator. Thereafter Justice K. Ramamoorthy withdrew from the case on December 14, 2016 and Justice Mukul Mudgal was nominated as arbitrator in his place.
Two applications have been filed by the appellant under Section 12 of the Act, one seeking termination of the mandate of Justice Doabia and the other seeking termination of the mandate of Justice Lahoti. These two applications were heard and disposed of by an order dated February 16, 2017. Justice Lahoti, with whom Justice Doabia concurred, held that they were entitled to continue with the arbitration. Justice Mukul Mudgal, on the other hand, concurred in the appointment of Justice Lahoti but held that Justice Doabia's appointment was hit by certain clauses of the Fifth and Seventh Schedules to the Act and, therefore, that his mandate has terminated. As against this order, OMP No.22/2017 was filed before a single Judge of the Delhi High Court who then dismissed both the petitions.
Finding of the Court:
Impugned judgment requires no interference.
Result: Appeals dismissed.
Ineligibility under Section 12(5) read with Seventh Schedule: Any person whose relationship with parties, counsel, or subject-matter falls under categories in the Seventh Schedule is ineligible to be appointed as arbitrator, notwithstanding prior agreement (waivable only by express written agreement post-dispute). Such ineligibility renders the arbitrator de jure unable to perform functions under Section 14(1)(a), and termination of mandate must be decided by court under Section 14(2), not by arbitral tribunal under Section 13. (!) (!) (!) [1000597240011]
Distinction between Fifth and Seventh Schedules: Items 1-19 are common to both Schedules; Fifth Schedule grounds (justifiable doubts on independence/impartiality) are for disclosure and post-award challenge under Section 34 after tribunal decides under Section 13; Seventh Schedule grounds cause absolute ineligibility determinable pre-award by court. (!) (!) (!) (!)
Disclosure obligations under Section 12(1): Prospective arbitrator must disclose in writing (Sixth Schedule form) any past/present relationships/interests likely raising justifiable doubts on independence/impartiality (guided by Fifth Schedule), or affecting ability to devote time/complete within 12 months; ongoing duty post-appointment. (!) (!) (!) (!) (!) (!)
Challenge procedure: Parties may agree on procedure; default is written challenge to tribunal within 15 days of awareness; if unsuccessful, tribunal continues and award challengeable under Section 34; withdrawal/agreement does not admit grounds' validity. (!) (!) (!) (!) (!)
Narrow grounds for award challenge post-2016 Amendment: Public policy limited to fundamental policy of Indian law, justice, or morality; patent illegality excludes mere erroneous law application or evidence re-appreciation; applies to domestic/international awards under Sections 34/48. [1000597240018][1000597240019]
Interpretation of Schedules: Adopt broad common-sensical approach per IBA Guidelines origin; neither expand nor restrict unduly; focus on impartiality/independence from reasonable third-person view; Explanation 3 allows repeat appointments in specialized fields (e.g., maritime/commodities) as custom/practice factor. [1000597240019] (!) (!)
Item 1, Seventh Schedule (advisor/business relationship): Requires regular advisory role concerning party's business; one-time professional legal opinion on unrelated matter does not qualify as "advisor" or business relationship, especially contrasted with Items 2, 8, 14, 15. [1000597240021] (!) (!)
Item 16, Seventh Schedule (previous involvement in case): Limited to prior involvement in the specific dispute (not prior arbitration between same parties on related issues/periods under same agreement); must contrast with Fifth Schedule Items 22/24; prior award as arbitrator does not create reasonable bias likelihood mandating ineligibility. [1000597240022][1000597240023][1000597240024] (!) (!)
No apparent bias from prior award: Arbitrator expected to approach subsequent related arbitration with open mind/objective judgment; prior decision alone insufficient for bias unless closed mind evidenced; common in repeat disputes (e.g., successive periods). [1000597240024][1000597240027] (!)
Outcome in facts: Single professional opinion by arbitrator to party on unrelated legal issue (2014) does not trigger Item 1; prior service as arbitrator in earlier phase of multi-arbitration dispute does not trigger Item 16; appointments upheld, challenges to tribunal order dismissed. [1000597240021][1000597240022][1000597240031]
JUDGMENT
R.F. Nariman, J.
Leave granted.
2. The present appeals raise interesting questions relating to the applicability of Sections 12 and 14 of the Arbitration and Conciliation Act, 1996, in particular with respect to sub-section (5) of Section 12 added by the Arbitration and Conciliation (Amendment) Act, 2015 (Act 3 of 2016) (hereinafter referred to as the 2016 Amendment Act).
3. Briefly stated, the relevant facts necessary to decide this case are as follows. The respondent, GAIL (India), issued a notice inviting tenders for supply of wax generated at GAIL's plant at Pata, Uttar Pradesh for a period of 20 years on an exclusive basis. The appellant successfully tendered for the said contract and the parties entered into an agreement dated April 1, 1999. Disputes arose between the parties, the appellant claiming that GAIL had wrongfully withheld supplies of wax, as a result of which the appellant invoked the arbitration clause included in the agreement.
4. Three earlier arbitrations have taken place between the parties. The present dispute arises from the fourth such arbitration. For the period 2004-2007, an Arbitral Tribunal consisting of Justice A.B. Rohatgi (presiding arbitrator), Justice J.K. Mehra and Justice N.N. Goswamy published an award on April 8, 2006 in which they directed specific performance of the agreement dated April 1, 1999. This award was never challenged and has since become final.
5. For the period 2007-2010, a second arbitration was held consisting of the same panel as the first arbitration.
6. For the period 2010-2013, the same Arbitral Tribunal was constituted. However, while the proceedings were pending, Justice Goswamy expired and Justice T.S. Doabia was appointed in his place. Justice A.B. Rohatgi resigned on February 17, 2013 as the presiding arbitrator, as a result of which Justice S.S. Chadha was appointed to fill his vacancy. This third arbitration proceeding culminated into two separate awards, both dated July 22, 2015. The appellant has filed a petition under Section 34 of the Act assailing the said awards, which is pending before the Delhi High Court.
7. In respect of the period from 2016 to 2019, initially, the appellant nominated Justice K. Ramamoorthy as its arbitrator. However, he withdrew from the case on December 14, 2016 and Justice Mukul Mudgal was nominated as arbitrator in his place. The respondent appointed Justice Doabia, and Justice Doabia and Justice K. Ramamoorthy appointed Justice K.K. Lahoti to be the presiding arbitrator, before Justice K. Ramamoorthy withdrew from the case. Two applications have been filed by the appellant under Section 12 of the Act, one seeking termination of the mandate of Justice Doabia and the other seeking termination of the mandate of Justice Lahoti. These two applications were heard and disposed of by an order dated February 16, 2017. Justice Lahoti, with whom Justice Doabia concurred, held that they were entitled to continue with the arbitration. Justice Mukul Mudgal, on the other hand, concurred in the appointment of Justice Lahoti but held that Justice Doabia's appointment was hit by certain clauses of the Fifth and Seventh Schedules to the Act and, therefore, that his mandate has terminated. As against this order, OMP No.22/2017 was filed before a single Judge of the Delhi High Court who then dismissed both the petitions.
8. Shri Shyam Divan, learned senior advocate appearing in civil appeal arising out of SLP(C) No. 20679 of 2017 and Shri Gopal Jain, learned senior advocate, appearing in civil appeal arising of SLP(C) No. 20675 of 2017 have assailed the judgment of the single Judge. According to Shri Divan, the appointment of Justice Lahoti squarely attracted Items 1, 8 and 15 of the Seventh Schedule thereby making him ineligible to act as arbitrator. He also argued that Items 20 and 22 contained in the Fifth Schedule are also attracted to the fact
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