The Government of Haryana PWD vs M/S G.F. Toll Road Pvt. Ltd. on
3 January 2019
The Government of Haryana PWD Haryana (B&R) Branch Appellant
M/s. G.F. Toll Road Pvt. Ltd. & Ors. Respondents
On 12.12.2008 the Appellant- State and Respondent No. 1 - M/s. G. F. Toll Road Pvt. Ltd.entered into a contract for construction, operation, and maintenance of Gurgaon- Faridabad Road and Ballabhgarh-Sohna Road on BOT (Build, Operate and Transfer) basis. The period of construction was for 24 months commencing from 31.05.2009. The said contract contained a provision for resolution of disputes. The clause stated that any dispute arising between the parties shall be resolved by reference to arbitration by a Board of Arbitrators. The agreement also stated that there shall be a Board of three Arbitrators, two of them shall be appointed by each party and the third arbitrator shall be appointed in accordance with the Rules 25 and 27 of Arbitration of the Indian Council of Arbitration.
During the implementation of the contract, disputes arose between the parties and Respondent No. 1 - M/s. G. F. Toll Road Pvt. Ltd. invoked the arbitration clause. Respondent No. 1 requested Respondent No.2- Indian Council of Arbitration (ICA) to commence the arbitration proceedings. On 05.05.2015 Respondent No. 1 appointed a retired Engineer-in-Chief, Mr. Surjeet Singh as their nominee arbitrator. The Appellant- State also appointed a retired Engineer-in-Chief, Mr. M.K. Aggarwal as their nominee arbitrator. An objection was raised by Respondent No. 2 on the appointment of Mr. M.K. Aggarwal on the ground that the appointed arbitrator was a former employee of the State and there may be justifiable doubts with regard to his impartiality while acting as an arbitrator. The Appellant refuted the objection on the ground that there was no such law that disproved the appointment of a former employee as an arbitrator and there can be no justifiable doubts concerning his integrity since the nominee arbitrator retired 10 years ago.
The Respondent No.2 reiterated that it has been established that there exists a direct relationship between the nominated arbitrator and the State, hence, a new arbitrator has to be appointed by the State. Respondent No. 2 requested 30 days to appoint a substitute arbitrator. In the meanwhile, Respondent No.2 went ahead and appointed the nominee arbitrator on behalf of the Appellant and the Presiding Officer.
The Appellant challenged the appointment of the nominee arbitrator in the District Court. The District Court held that the Petition was not maintainable. Subsequently, the Appellant – State filed a Civil Revision Petition before the Punjab and Haryana High Court, Chandigarh. The Civil Revision Petition was dismissed by the High Court and the decision of the District Court was upheld. After this, the application filed before the Arbitrary Tribunal under section 16 of the Arbitration and Conciliation Act, 1996 also came to be dismissed. Hence, the Appellant approached the Supreme Court.
- Whether the appointment of the nominee arbitrator by the Respondent No.2 on behalf of the Appellant was justified?
- Whether a former employee can be appointed as an arbitrator?
- Section 15(2) of the Arbitration and Conciliation Act, 1996- This provision states that the substitute arbitrator has to be appointed in the same procedure as the arbitrator he has substituted was appointed.
- ACC Ltd. v. Global Cements Ltd.- In this case, the Court held that the procedure agreed upon by the parties for the appointment of the original arbitrator is equally applicable to the appointment of a substitute arbitrator, even if the agreement does not specifically provide so.
- Locabail Ltd. v. Bayfield Properties- In this case, the Court held that the greater the passage of time between the past event that reflects a danger of bias and the case in which the objection is raised, the weaker the objection will be.
- Entry 1 to the Fifth Schedule- The 2015 Amendment inserted this provision to the Act. The Entry indicates that a person, who is related to a party as an employee, consultant, or advisor, is disqualified to act as an arbitrator.
Concerning the first issue, the Court applied the provision Section 15(2) and also the rule laid down in the case ACC Ltd. v. Global Cements Ltd. The Court stated that the ICA could have appointed the substitute arbitrator only if the Appellant had conveyed its intention of not appointing a substitute arbitrator. The ICA did not have the authority to usurp the jurisdiction of the Appellant of appointing a substitute arbitrator. Therefore, the Court held that the appointment of the nominee arbitrator on behalf of the Petitioner was unjustified and contrary to the Rules of ICA.
In respect of the second issue, the Court stated that the pre-amended 1996 Act would apply to this case because the appointment was made before the 2015 Amendment. The 1996 Arbitration and Conciliation Act does not provide for any provision that disqualifies a former employee from acting as an arbitrator, provided that there are no justifiable doubts as to his independence and impartiality. The Court also applied the rule laid down in the case Locabail Ltd. v. Bayfield Properties and stated that the fact that the nominee arbitrator was employed to the State 10 years ago, makes the objection of the Respondent untenable.
The Court also applied Entry 1 of the Fifth Schedule and stated that the words ‘is an’ indicates that a present employee, advisor, or consultant of the parties is not permitted to be nominated as an arbitrator. Thus, the objection of the Respondent was untenable. The Court held that the ICA made a bald assertion that the nominee arbitrator – Mr. M. K. Aggarwal would not be independent and impartial.
The judgment was in favor of the Appellant. It was held that the objections made by the Respondent were unjustified. The appointment of the nominee arbitrator on behalf of the Appellant was a