Case: HRD Corporation Vs. GAIL Limited

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 GAILs 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 periodan 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 perioda second arbitration was held consisting of the same panel as the first arbitration.6. For the periodthe 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 Doabias 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.

Reasoning:
Section 12(5) read with the Seventh Schedule makes it clear that if the arbitrator falls in any one of the categories specified in the Seventh Schedule, he becomes "ineligible" to act as arbitrator. Once he becomes ineligible, it is clear that, under Section 14(1)(a), he then becomes de jure unable to perform his functions inasmuch as, in law, he is regarded as "ineligible". In order to determine whether an arbitrator is de jure unable to perform his functions, it is not necessary to go to the Arbitral Tribunal under Section 13. Since such a person would lack inherent jurisdiction to proceed any further, an application may be filed under Section 14(2) to the Court to decide on the termination of his/her mandate on this ground. As opposed to this, in a challenge where grounds stated in the Fifth Schedule are disclosed, which give rise to justifiable doubts as to the arbitrators independence or impartiality, such doubts as to independence or impartiality have to be determined as a matter of fact in the facts of the particular challenge by the Arbitral Tribunal under Section 13. If a challenge is not successful, and the Arbitral Tribunal decides that there are no justifiable doubts as to the independence or impartiality of the arbitrator/arbitrators, the Tribunal must then continue the arbitral proceedings under Section 13(4) and make an award. It is only after such award is made, that the party challenging the arbitrators appointment on grounds contained in the Fifth Schedule may make an application for setting aside the arbitral award in accordance with Section 34 on the aforesaid grounds. It is clear, therefore, that any challenge contained in the Fifth Schedule against the appointment of Justice Doabia and Justice Lahoti cannot be gone into at this stage, but will be gone into only after the Arbitral Tribunal has given an award. Therefore, we express no opinion on items contained in the Fifth Schedule under which the appellant may challenge the appointment of either arbitrator. They will be free to do so only after an award is rendered by the Tribunal.Shri Divan is right in drawing our attention to the fact that the 246th Law Commission Report brought in amendments to the Act narrowing the grounds of challengewith seeing that independent, impartial and neutral arbitrators are appointed and that, therefore, we must be careful in preserving such independence, impartiality and neutrality of arbitrators. In fact, the same Law Commission Report has amended Sections 28 and 34 so as to narrow grounds of challenge available under the Act. The judgment in ONGC v. Saw Pipes Ltd, (2003) 5 SCC 705 , has been expressly done away with. So has the judgment in ONGC v. Western Geco International Ltd., (2014) 9 SCC 263. Both Sections 34 and 48 have been brought back to the position of law contained in Renusagar Power Plant Co Ltd. v. General Electric Co., (1994) Supp (1) SCC 644, where "public policy" will now include only two of the three things set out therein, viz., "fundamental policy of Indian law" and "justice or morality". The ground relating to "the interest of India" no longer obtains. "Fundamental policy of Indian law" is now to be understood as laid down in Renusagar (supra). "Justice or morality" has been tightened and is now to be understood as meaning only basic notions of justice and morality i.e. such notions as would shock the conscience of the Court as understood in Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49. Section 28(3) has also been amended to bring it in line with the judgment of this Court in Associate Builders (supra), making it clear that the construction of the terms of the contract is primarily for the arbitrator to decide unless it is found that such a construction is not a possible one.19. Thus, an award rendered in an international commercial arbitrationwhether in India or abroadis subject to the same tests qua setting aside under Section 34 or enforcement under Section 48, as the case may be. The only difference is that in an arbitral award governed by Part I, arising out of an arbitration other than an international commercial arbitration, one more ground of challenge is available viz. patent illegality appearing on the face of the award. The ground of patent illegality would not be established, if there is merely an erroneous application of the law or aof evidence.20. However, to accede to Shri Divans submission that because the grounds for challenge have been narrowed as aforesaid, we must construe the items in the Fifth and Seventh Schedules in the most expansive manner, so that the remotest likelihood of bias gets removed, is not an acceptable way of interpreting the Schedules. As has been pointed out by us hereinabove, the items contained in the Schedules owe their origin to the IBA Guidelines, which are to be construed in the light of the general principles contained thereinthat every arbitrator shall be impartial and independent of the parties at the time of accepting his/her appointment. Doubts as to the above are only justifiable if a reasonable third person having knowledge of the relevant facts and circumstances would reach the conclusion that there is a likelihood that the arbitrator may be influenced by factors other than the merits of the case in reaching his or her decision. This test requires taking a broadapproach to the items stated in the Fifth and Seventh Schedules. This approach would, therefore, require a fair construction of the words used therein, neither tending to enlarge or restrict them unduly. It is with these prefatory remarks that we proceed to deal with the arguments of both sides in construing the language of the Seventh Schedule.On reading the aforesaid guideline and reading the heading which appears with Item 16, namely "Relationship of the arbitrator to the dispute", it is obvious that the arbitrator has to have a previous involvement in the very dispute contained in the present arbitration. Admittedly, Justice Doabia has no such involvement. Further, Item 16 must be read along with Items 22 and 24 of the Fifth Schedule. The disqualification contained in Items 22 and 24 is not absolute, as an 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 yet not be disqualified on his showing that he was independent and impartial on the earlier two occasions. Also, if he currently serves or has served within the past three years as arbitrator in another arbitration on a related issue, he may be disqualified under Item 24, which must then be contrasted with Item 16. Item 16 cannot be read as including previous involvements in another arbitration on a related issue involving one of the parties as otherwise Item 24 will be rendered largely ineffective. It must not be forgotten that Item 16 also appears in the Fifth Schedule and has, therefore, to be harmoniously read with Item 24.The fact that Justice Doabia has already rendered an award in a previous arbitration between the parties would not, by itself, on the ground of reasonable likelihood of bias, render him ineligible to be an arbitrator in a subsequent arbitration.We have not been shown anything to indicate that Justice Doabia would be a person holding a pronouncedview as in Locabail (supra). Therefore, we are satisfied that there is no real possibility that Justice Doabia will not bring an open mind and objective judgment to bear on arguments made by the parties in the fourth arbitration, which may or may not differ from arguments made in the third arbitration.29. The appointment of Justice Doabia was also attacked on the ground that he had not made a complete disclosure, in that his disclosure statement did not indicate as to whether he was likely to devote sufficient time to the arbitration and would be able to complete it within 12 months. We are afraid that we cannot allow the appellant to raise this point at this stage as it was never raised earlier. Obviously, if Justice Doabia did not indicate anything to the contrary, he would be able to devote sufficient time to the arbitration and complete the process within 12 months.30. It was also faintly urged that the arbitrator must without delay make a disclosure to the parties in writing. Justice Doabias disclosure was by a letter dated October 31, 2016 which was sent to the Secretary General of the International Centre for Alternative Dispute Resolution (ICADR). It has come on record that for no fault of Justice Doabia, the ICADR, through oversight, did not handover the said letter or a copy thereof to the appellant until November 24, 2016, which is stated in its letter dated November 29, 2016. This contention also, therefore, need not detain us.We are afraid that this argument again cannot be countenanced for the simple reason that Explanation 3 stands by itself and has to be applied as a relevant fact to be taken into account. It has no indirect bearing on any of the other items mentioned in the Seventh Schedule.