Ineligible arbitrator loses the ability to nominate another

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The Supreme Court recently held that an arbitrator who becomes ineligible to be appointed as an arbitrator by operation of law also loses the power to nominate another person as an arbitrator, even if the other person does not have any financial or other relationship with the person appointing them.

In TRF Ltd v Energo Engineering Projects Ltd, TRF, a manufacturer of bulk material handling equipment, was issued a purchase order by Energo for design, manufacturing, supply, transport of equipment, etc., for securing the performance of which TRF submitted an advance bank guarantee and a performance bank guarantee to Energo. Later controversy arose with regard to encashment of bank guarantee.

TRF approached Delhi High Court seeking appointment of an arbitrator, contending that by virtue of section 12(5) of the Arbitration and Conciliation Act, 1996, as amended by the Arbitration and Conciliation (Amendment) Act, 2015, read with the fifth and seventh schedules to the amended act, the managing director of Energo had become ineligible to act as the arbitrator and as a natural corollary, he had no power to nominate another as the arbitrator.

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The dispute digest is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.

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