nomination of arbitrator by ineligible persons

Supreme Court: While hearing two references made to the larger Bench, wherein the correctness of the Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV), (2020) 14 SCC 712 (‘ECI-SPIC’) was called in question and the preliminary issue that whether a person who is ineligible to be appointed as arbitrator, can nominate an arbitrator, was to be dealt with, the five Judge Bench comprising of Chief Justice of India Dr. D.Y. Chandrachud, Hrishikesh Roy, PS Narasimha, Pankaj Mithal and Manoj Misra, JJ., deferred the matter for a period of two months i.e., the matter was listed for hearing on 13-09-2023.


In the ECI-SPIC (supra) the dispute arose between the Central Organisation for Railway Electrification (‘CORE’) and ECI-SPIC-SMO-MCML (Joint Venture) (‘ECI’) when the ECI did not complete the work within the prescribed period under the Contract, subsequently, the Contract was terminated by the CORE as per Clause 62 of the General Conditions of the Contract (‘GCC’). Aggrieved by the termination of Contract, the ECI filed a petition before the Allahabad High Court, which was dismissed vide Order dated 28-11-2017 and the High Court directed the ECI to avail the alternative remedy by invoking the arbitration clause. Accordingly, the ECI requested the CORE for appointment of an Arbitral Tribunal for resolving the disputes between the parties and settle the claims value of Rs.73.35 crores. The CORE had sent two lists comprising of Railway Electrification Officers of JA Grade and four retired Railway officers, respectively, calling upon the ECI to select any two arbitrators for the constitution of tribunal. However, the ECI did not send any reply and filed an application before the High court under Section 11 of the Arbitration and Conciliation Act, 1996 (‘the Act’) seeking the appointment of a sole arbitrator.

The High Court vide order dated 03-01-2019, rejected the argument of the ECI- that the arbitrator is to be appointed as per GCC 64 (3)(a)(ii) and 64 (3)(b) of the Contract, and appointed Justice Rajesh Dayal Khare a retired judge of the Allahabad High Court as the sole arbitrator for resolving the dispute between the parties. Being aggrieved by the said orders, the ECI had preferred a Special Leave Petition to appeal before the Court.

The Court had rejected the contention of ECI the that when the General Manager of the CORE himself being ineligible to be appointed as an arbitrator under Section 12(5) read with Schedule VII of the Act, the General Manager cannot nominate any of the persons to be arbitrator and held that the General Manager was eligible to appoint an arbitrator. In ECI-SPIC (supra), the Court had rejected the applicability of TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377, (‘TRF Limited’) wherein it was held “that that once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator.” A similar view as TRF Limited was taken by the Court previously in Perkins Eastman Architects DPC v. HSCC (India) Ltd., (2020) 20 SCC 760.

Later, in Union of India v. Tantia Constructions Limited, 2021 SCC OnLine SC 271, (‘Tantia’) the Bench disagreed with the view taken in ECI-SPIC (supra). It was stated that “once the appointing authority itself is incapacitated from referring the matter to arbitration, it does not follow that notwithstanding this, yet appointments may be valid depending on the facts of the case.” Therefore, the Bench had requested the then Chief Justice to constitute a larger Bench to look into the correctness of the ECI-SPIC (supra).

In JSW Steel Ltd. v. South Western Railway, 2022 SCC OnLine SC 1973, (‘JSW Steel’) it was noted that in Tantia (supra) the Court had expressed its disagreement with the ECI-SPIC and a request was placed before the then Chief Justice of India to constitute a larger Bench to look into the correctness of the said decision. Therefore, the Bench in JSW Steel had also called for the reference of the matter before the larger Bench.

Court’s Order

The Court noted that the Union Government had constituted an Expert Committee to consider the provisions of the Act and that the references made to the larger Bench would fall within the broad scope of the Expert Committee. Therefore, the Court directed that the hearing of the two references to the Larger Bench be deferred by a period of two months and that the Court shall be apprised on the next date i.e., 13-09-2023 of the progress which has been made following the Constitution of the Expert Committee.

[Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV), 2023 SCC OnLine SC 855, Order Dated: 12-07-2023]

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