Once sole arbitrator becomes ‘ineligible’ for resolving dispute between parties in view of A&C Act, he loses mandate to continue as sole arbitrator: Supreme Court

Read Judgment: Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited vs. M/s Ajay Sales & Suppliers

Pankaj Bajpai

New Delhi, September 17,2021: The Supreme Court has held that once the sole arbitrator i.e., the Chairman is ‘ineligible’ to act as an arbitrator to resolve the dispute between the parties in view of Section 12(5) read with Seventh Schedule to the Arbitration & Conciliation Act, he loses mandate to continue as a sole arbitrator.

A Division Bench of Justice M.R Shah and Justice Aniruddha Bose observed that the Chairman who is elected member/Director of the Sangh, can certainly be said to be ‘ineligible’ to become an arbitrator as per Section 12(5) read with Seventh Schedule to the Act.

The background of the case was that the distributorship agreement between various firms and Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited contained an arbitraton clause, as per which all disputes and differences arising out of or in any way touching or concerning the agreement, had to be referred to the sole Arbitrator, the Chairman of the said Sahkari Sangh.

Following a dispute between the firm and sangh, the arbitration proceedings were initiated by the Chairman. During the pendency of the said arbitration proceedings, the firms approached the High Court for appointment of an arbitrator in exercise of powers u/s 11 of the Act. The High Court allowed the said application and appointed a former District and Sessions Judge to act as an arbitrator.

The Division Bench quoted the case of Bharat Broadband Network Limited vs United Telecoms Limited, wherein it was held that if the arbitrator falls in any one of the categories specified in the Seventh Schedule, he becomes ‘ineligible’ to act as an arbitrator.

It was further observed that once he becomes ‘ineligible’, it is clear that he then become dejure unable to perform his functions in asmuch as in law, he is regarded as ‘ineligible’, added the Bench.

The Top Court further observed that where a person becomes ineligible to be appointed as an arbitrator there is no question of challenge to such arbitrator before such arbitrator in such a case i.e. a case which falls u/s 14(1)(a) of the Act gets attracted inasmuch as the arbitrator becomes, as a matter of law, unable to perform his functions u/s 12(5), being ineligible to be appointed as an arbitrator and this being so, his mandate automatically terminates, and he shall then be substituted by another arbitrator.

Therefore, the Apex Court said that the High Court has committed no error in appointing the arbitrator other than the sole arbitrator i.e., Chairman as per Clause 13 of the Agreement in exercise of powers, u/s 11 r/w/s 14 of the Act.