Ineligibility of an arbitrator fatal, unless waived

Section 12(5) of the Arbitration and Conciliation Act, 1996 (act), prescribes that a person whose relationship with the parties or the counsel or the subject matter of dispute falls under any of the categories specified in the seventh schedule to the act, is ineligible to be appointed as an arbitrator. The exception to such prescription is that (i) an express waiver is given by parties of the applicability of the disqualification; (ii) such waiver is agreed to only after the dispute has arisen, and (iii) such waiver is expressed in writing.

In the 2017 case of TRF Ltd v Energo Engineering Projects, the Supreme Court had ruled that a person disqualified by operation of seventh schedule, could not also nominate an arbitrator. The court had ruled that nomination of an arbitrator by an ineligible arbitrator would be tantamount to the proceedings being heard by the ineligible arbitrator himself. In the same way that ineligibility strikes at the root of the power to arbitrate, it also removes the power to nominate an arbitrator.

A similar dispute to that in the case of TRF Ltd. arose in the case of Bharat Broadband Network Limited v United Telecoms Limited (2019). Bharat had invited bids for a turnkey project and United was successful. An advance purchase order issued in 2014 included an arbitration clause. After disputes arose, United invoked arbitration and called on the managing director of Bharat, to appoint an arbitrator. In January 2017, the managing director appointed a sole arbitrator.

Karthik Somasundram is a partner and Shreya Gupta is a senior associate at Bharucha & Partners.

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