SUPREME COURT OF INDIA HOLDS APPOINTMENT OF ARBITRATOR BY INELIGIBLE PERSON VOID AB INITIO

The Supreme Court of India in the case of Bharath Broadband Network Ltd Vs United Telecoms Ltd, passed a Judgment dated 16.04.2019 whereby the Apex Court held that the appointment of arbitrator by a person who himself is ineligible to be an arbitrator is void ab initio as per Section 12 (5) of the Arbitration and Conciliation Act, 1996 as amended thereof (the Act).

In the said case, disputes had arisen between the Appellant and the Respondent with regard to purchase order for a turnkey project for supply, installation, commissioning and maintenance of certain Gigabit Passive Optical Networks (GPON) and other equipments. As a result, the Respondent invoked the arbitration clause and called upon the Chairman and Managing Director of the Appellant Company in order to appoint an independent and impartial arbitrator for adjudication of such disputes. The Chairman and Managing Director of the Appellant Company nominated Mr. K.H Khan as the sole arbitrator (Arbitrator) on 17.01.2017 to adjudicate and determine disputes that arise between them. The Appellant requested the Arbitrator to withdraw himself from the proceedings as he was de jure unable to perform his duty as Arbitrator. Further they wanted to approach the High Court for the appointment of another arbitrator in his place. But the Arbitrator by an Order dated 21.10.2017 rejected the said application without giving any reason.

Thereafter, the Appellant filed a petition in the High Court of Delhi under Section 14 and 15 of the Act. But the Delhi High Court rejected the said Petition on the ground that the very person who appointed the Arbitrator is estopped from raising a plea that such Arbitrator cannot be appointed after participating in proceedings.

Further, the Appellant filed an appeal against the said Delhi High Court Judgment in the supreme court of India under Sections 12 to 14 of the Act based on the judgment rendered in TRF Ltd v ENERGY ENGINEERING PROJECTS Ltd.

The Apex Court followed the 2017 decision in TRF Ltd. (supra) and held that the Chief Managing Director (CMD) of Bharath Broadband Network Ltd (BBNL) was himself an ineligible person as per Item 5 of Seventh Schedule of the Act, which bars manager, director etc. of a party to the dispute from being an arbitrator. Thus, the Apex Court directed the High Court may appoint a substitute arbitrator with the consent of both the Parties.

Sali John

Legal Intern

The Indian Lawyer

 5^th year Student

 Mar Gregorios College of Law