The main legal point established in the judgment is that a party cannot challenge the appointment of an arbitrator on the ground of ineligibility under Section 12(5) of the Act after accepting the appointment without objections.

1. These petitions raise an important and interesting issue of law arising out of Section 12(5) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘Act’) and proviso thereto. The question of law being as to whether a party, who appoints an arbitrator knowing fully well that such arbitrator is suffering from a disability that falls under any of the categories specified in the Seventh Schedule of the Act and shall be ineligible to be appointed as an arbitrator, can later challenge his appointment on the ground that he was ineligible to be appointed as an arbitrator under Section 12(5) of the Act.

2. The disputes between the parties have arisen out of the Purchase Order bearing No. MM/APO/007/2014-15 dated 30th September, 2014. Clause III.20.1 thereof provides for the resolution of the disputes between the parties through arbitration and the same is quoted herein below:-

“III.20 ARBITRATION

“III.20.1 In the event of any question, dispute or difference arising under the agreement or in connection there-with (except as to the matters, the decision to which is specifically provided under this agreement), the same shall be referred to the sole arbitration of the CMD, BBNL or in case his designation is changed or his office is abolished, then in such cases to the sole arbitration of the officer for the time being entrusted (whether in addition to his own duties or otherwise) with the functions of the CMD, BBNL or by whatever designation such an officer may be called (hereinafter referred to as the said officer), and if the CMD or the said officer is unable or willing to act as such, then to the sole arbitration of some other person appointed by the CMD or the said officer. The agreement to appoint an arbitrator will be in accordance with the Arbitration and Conciliation Act 1996. There will be no object to any such appointment on the ground that the arbitrator is a Government Servant or that he has to deal with the matter to which the agreement relates or that in the course of his duties as a Government Servant/PSU Employee he has expressed his views on all or any of the matters in dispute. The award of the arbitrator shall be final and binding on both the parties to the agreement. In the event of such an arbitrator to whom the matter is originally referred, being transferred or vacating his office or being unable to act for any reason whatsoever, the CMD, BBNL or the said officer shall appoint another person to act as an arbitrator in accordance with terms of the agreement and the person so appointed shall be entitled to proceed from the stage at which it was left out by his predecessors.” (emphasis supplied)

3. A bare reading of the above clause would show that in terms thereof, the CMD of the petitioner or his nominee was to act as the Sole Arbitrator. The Supreme Court in TRF Ltd. Vs Energo Engineering Projects Ltd. (2017) 8 SCC 377, interpreting Section 12(5) of the Act and a similar clause in the agreement held as under:-

“53. First, we shall deal with Clause (d). There is no quarrel that by virtue of Section 12(5) of the Act, if any person who falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as the arbitrator. There is no doubt and cannot be, for the language employed in the Seventh Schedule, the Managing Director of the Corporation has become ineligible by operation of law. It is the stand of the learned Senior Counsel for the appellant that once the Managing Director becomes ineligible, he also becomes ineligible to nominate. Refuting the said stand, it is canvassed by the learned Senior Counsel for the respondent that the ineligibility cannot extend to a nominee if he is not from the Corporation and more so when there is apposite and requisite disclosure. We think it appropriate to make it clear that in the case at hand we are neither concerned with the disclosure nor objectivity nor impartiality nor any such other circumstance. We are sin