The Supreme Court has observed that skipping the statutory route carefully devised by Parliament can cast yet more spells of uncertainty upon the arbitration process.

The Court was deciding a miscellaneous application filed by Chennai Metro Rail Limited (applicant), a joint venture between the Central Government and Tamil Nadu Government which had, pursuant to a public tender, awarded the contract to the respondent (M/s. Transtonnelstroy Afcons) with regard to a project of total value of Rs. 1,566 crores.

The two-Judge Bench of Justice S. Ravindra Bhat and Justice Aravind Kumar held, “The attempt by Chennai Metro to say that the concept of de jure ineligibility because of existence of justifiable doubts about impartiality or independence of the tribunal on unenumerated grounds [or other than those outlined as statutory ineligibility conditions in terms of Sections 12 (5)], therefore cannot be sustained. We can hardly conceive of grounds other than those mentioned in the said schedule, occasioning an application in terms of Section 12 (3). In case, this court were in fact make an exception to uphold Chennai Metro’s plea, the consequences could well be an explosion in the court docket and other unforeseen results. Skipping the statutory route carefully devised by Parliament can cast yet more spells of uncertainty upon the arbitration process.”

The Bench said that the de jure condition is not the key which unlocks the doors that bar challenges, mid-stream, and should “not to unlock the gates which shuts the court out” from what could potentially become causes of arbitrator challenge, during the course of arbitration proceedings, other than what the Act specifically provides for.

Additional Solicitor General N. Venkataraman and Advocate Ritin Rai represented the applicant while Senior Advocate Darius J. Kambhatta represented the respondents.

Facts of the Case -

A contract was signed between the applicant and the respondent and eventually, the respondent sought a reference of several heads of disputes to arbitration after certain interlocutory proceedings. It was then agreed that the two dispute heads and the applicant’s counter claim would be referred to a three-member tribunal under the Arbitration and Conciliation Act, 1996 (A&C Act) and the Tribunal was then constituted. The Tribunal by Minutes recorded the agreement of parties, that the hearing fee for each arbitrator (there were three members of the Tribunal) was fixed at ₹ 1,00,000/- per session of hearing date. During the proceedings, one member of the tribunal passed away and had to be substituted.

The parties proceeded with the conduct of arbitration and in the mean-while, another tribunal had dealt with two claims of the respondent. The award passed in those proceedings became the subject matter of challenge (by respondent) under Section 34 which was declined by an order of the Madras High Court. The appeal against that order was thereafter pending and the tribunal decided that suspension of its proceedings due to the pendency of the appeal, to await the outcome of the Division Bench was not in the larger interest of justice and proceeded with other part of the claim which was pending before it. However, after hearing counsel for the parties, and considering the materials on the record, the Court dismissed the application filed by the applicant.

The Supreme Court after considering the submissions made by both parties noted, “The UK Act does not place any express obligation on potential or serving arbitrators to disclose to parties regarding matters that concern their independence or impartiality. This duty was not previously recognized by the courts in the UK. The Supreme Court in Halliburton (supra) had to uniquely determine where such a duty existed in English law. The Court found that the duty of disclosure for arbitrators was implicitly based on section 33 of the 1996 Act (Arbitration Act, 1996), which provides that arbitral tribunals shall act fairly and impartially as between the parties. As the Court said that the legal obligation to disclose matters that could give rise to justifiable doubts as to an arbitrator’s impartiality was “encompassed within the statutory obligation of fairness” it was “also an essential corollary of the statutory obligation of impartiality.”

The Court referred to the recent decision of the UK Supreme Court in the case of Halliburton Company v. Chubb Bermuda Insurance Ltd. 2023 (2) All E.R. 1175 which considered if an arbitrator with a financial relationship with a party to the dispute in which he or she was appointed was under a duty to disclose it; and held that it would “be incumbent on the arbitrator to disclose the relationship in order to comply with his statutory duty of fairness under section 33 of the 1996 Act. It held that there was a legal duty of disclosure in English law which was “encompassed within the statutory duties of an arbitrator under section 33,” while adding that this was “a component of the arbitrator’s statutory duty to act fairly and impartially,” and that it did not override the separate duty of privacy and confidentiality under the English law.

“Our enactment is in a sense, an improvement. Parliament’s conscious effort in amending the Act, because of the inclusion of the fifth schedule, as a disclosure requirement, as an eligibility condition [Section 12 (1)] and a continuing eligibility condition, for functioning [Section 12 (2)] and later, through Section 12 (5), the absolute ineligibility conditions that render the appointment, and participation illegal, going to the root of the jurisdiction, divesting the authority of the tribunal, thus terminating the mandate of the arbitrator, as a consequence of the existence of any condition enumerated in the seventh schedule, are to clear the air of any ambiguities. The only manner of escaping the wrath, so to say of Section 12 (5) is the waiver- in writing by the party likely to be aggrieved”, also observed the Court.

Accordingly, the Apex Court dismissed the application and directed the Arbitrators to resume the proceedings and decide the case in accordance with law.

Cause Title- Chennai Metro Rail Limited Administrative Building v. M/s. Transtonnelstroy Afcons (JV) & Anr. (Neutral Citation: 2023 INSC 932)

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