ELP Arbitration: Update

Mar 23, 2022
  • Author(s) : Alok Jain , Ria Dalwani, Tvisha Desai

    Panipat Jalandhar NH 1 Tollway Private Limited v National Highways Authority of India[1]


    As per the Arbitration and Conciliation Act, 1996 (Act), when a person is approached with a potential appointment as an arbitrator, he/she shall provide a written disclosure if any circumstances exist which could potentially give rise to ‘justifiable doubts’ as to his/her independence or impartiality[2]. The grounds in the Fifth Schedule to the Act guide in determining whether circumstances exist which give rise to such ‘justifiable doubts’[3]. The Seventh Schedule[4] lays down grounds which, if found to exist, will result in the person being ‘ineligible’ to be an arbitrator since the Seventh Schedule goes to the very root of appointment of an arbitrator.[5]

    Earlier this year, the Delhi High Court (Court) considered Entry 22 of the Fifth Schedule (Entry 22) while ascertaining if the appointment of the same arbitrator in multiple proceedings by the same party was in in contravention of the Act. Entry 22 provides that if the (proposed) arbitrator has within the past three years been appointed as an arbitrator on two or more occasions by one of the parties or an affiliate of one of the parties, the same gives rise to justifiable doubts as to his impartiality and independence. After sifting through the precedents and considering the statutory provisions, the Court held that there is no blanket embargo envisaged in Entry 22, and courts are at liberty to arrive at a just decision based on the facts of each case.

    Facts and contentions in brief

    • The Concessionaire (Petitioner) and the Employer (Respondent) had executed a Concession Agreement (Agreement). Two arbitrations were pending between the same parties in relation to disputes that arose from the same Agreement. In the second arbitration (Second Arbitration), the Respondent having failed to appoint an arbitrator, the Petitioner moved the Court to appoint an arbitrator and the Court appointed Mr. X. In Mr. X’s disclosure under the Second Arbitration, he revealed that he had been appointed by the Respondent in three other arbitrations in the previous three years.
    • The Petitioner commenced a third arbitration (Third Arbitration) under the same Agreement through a Notice issued in June 2021 (Notice). In response to the Notice, the Respondent nominated Mr. X and sought consolidation of the Third Arbitration with the Second Arbitration. The Petitioner objected to the appointment of Mr. X since he had been appointed by the Respondent in four matters, including the Second Arbitration. As the Respondent declined to appoint another arbitrator, the Petitioner filed an application under section 11 of the Act for appointment of an arbitrator.
    • The Petitioner contended that the Respondent failed to appoint an arbitrator and challenged the appointment of Mr. X as it contravened Entry 22. Amongst other defenses, the Respondent submitted that an arbitrator had in fact been duly appointed and that Entry 22, by itself, did not bar repeat appointment.

    Findings of the Court

    • The Court, referred to HRD Corporation[6] wherein the Supreme Court inter alia had held that the disqualification contained in Entry 22 is not absolute, since the arbitrator who has within the past three years been appointed as arbitrator on two or more occasions by one of the parties or an affiliate may not be disqualified on his showing that he was independent and impartial on the earlier two occasions. In view of HRD Corporation, the Court held that “there is no embargo to appointment of an Arbitrator in cases more than stipulated in Entry 22”; and although enactments have been introduced to ensure independence and impartiality of arbitrators, the same do not incapacitate the courts to arrive at a just decision by appreciating the facts of a case[7].
    • Considering the facts, the Court inter alia concluded that (i) Mr. X provided necessary disclosures; (ii) the Petitioner itself consented to the appointment of Mr. X in the Second Arbitration; and (iii) to avoid multiplicity of proceedings, the disputes referred to in the Notice shall be consolidated with the Second Arbitration and heard by the second arbitral tribunal.


    • In Sawarmal Gadodia[8], the petitioner assailed four awards passed by the same arbitrator under section 34 of the Act. Upon enquiry, the Bombay High Court discovered that the respondent had appointed the same arbitrator for 252 arbitrations and the arbitrator had failed to adequately set out the same in his disclosure under section 12 of the Act read with Entry 22. The Bombay High Court set aside the awards, albeit with the consent of the parties.
    • So, at what number of repeat appointments is the line to be drawn? Or is it a case not of numerical statistics but rather that of subjective assessment? Incidentally, while in Sawarmal Gadodia the Bombay High Court set aside the four awards, it referred the four disputes which formed subject matter of the four awards to arbitration before a common sole arbitrator and held that the arbitrator “shall decide the said disputes independently of each other, as four separate references”. Seemingly, the Bombay High Court’s ruling was not intended to be a constricted reading of Entry 22; it was swayed by the erstwhile arbitrator’s omission to give full and frank disclosure in this case.
    • Reflecting upon the jurisprudence, it emerges that – in the circumstances of each case, if the court believes that mere appointment of the same person as an arbitrator by the same party more than twice in the past three years has seemingly not given rise to justifiable doubts, the contravention under Entry 22 does not get triggered. If the nominating party or the proposed arbitrator can justify the impartiality, then Entry 22 will not get in the way of repeat appointments.
    • Entry 22 derives from the Orange List of the IBA Guidelines[9]. This list is a non-exhaustive enumeration of specific situations which (depending on the facts of a given case) in the eyes of the parties may give rise to justifiable doubts as to the arbitrator’s impartiality or independence. Indeed, the Law Commission formulated the Fifth Schedule based on the Red and Orange List of the IBA Guidelines, whereas the foundation for the Seventh Schedule (which envisages a more serious subset of situations) was the Red List[10]. Thus, the intent for the Seventh Schedule was to set out situations, which if found to exist, would render the arbitrator ineligible.
    • Therefore, to avoid disqualification on account of multiple nominations by the same party, it is critical for an arbitrator to ensure that (i) the disclosure is complete and transparent and (ii) the disclosure sets out in detail why multiple previous nominations do not give rise to justifiable doubts (which could by way of illustration include instances of awards against the nominating party).
    • Clearly though, the need of the hour is not a resounding debate on the interpretation of the statutory provisions but an enlargement in the pool of qualified and experienced arbitrators in India. The impetus that was sought to be given to institutional arbitration seems to be waning. Considering the viral trend, a booster shot may be required to alleviate these maladies brought on by ad hoc arbitration.

    We hope you have found this information useful. For any queries/clarifications please write to us at insights@elp-in.com  or write to our authors:

    Alok Jain, Associate Partner – Email – alokjain@elp-in.com
    Ria Dalwani, Senior Associate – Email – riadalwani@elp-in.com
    Tvisha Desai, Associate – Email – tvishadesai@elp-in.com

    Disclaimer: The information provided in this update is intended for informational purposes only and does not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein.

    [1] 2022 SCC OnLine Del 108, Order dated 7 January 2022, Delhi High Court
    [2] Section 12 (1) of the Act
    [3] See: Explanation 1 to Section 12(1) of the Act
    [4] See: Section 12(5) of the Act
    [5] HRD Corporation (Marcus Oil and Chemical Division) v GAIL (India) Limited, (2018) 12 SCC 471
    [6] HRD Corporation (Marcus Oil and Chemical Division) v GAIL (India) Limited, (2018) 12 SCC 471; Paragraph 24
    [7] Paragraph 40
    [8]Sawarmal Gadodia v Tata Capital Financial Services Limited, 2019 SCC OnLine Bom 849
    [9] IBA Guidelines on Conflicts of Interest in International Arbitration, ISBN: 978-0-948711-36-7
    [10] Law Commission of India, Report No. 246, Amendments to the Arbitration and Conciliation Act 1996, August, 2014, Paragraph 59