Himachal Pradesh High Court: In a writ petition filed by the petitioner against the unilateral appointment of Director, Department of Digital Technologies and Governance, Himachal Pradesh (‘Director of DTG’), as the sole arbitrator by the State, the Division Bench of Tarlok Singh Chauhan* and Sushil Kukreja, JJ., allowed the petition holding that the statutory bar under Section 12(5) of the Arbitration and Conciliation Act, 1996 (‘the Act’) would squarely be applicable as the Director of DTG could not be held to be an independent and impartial arbitrator because he could be a consultant or an advisor of the State.
Background
The petitioner filed the present petition against the unilateral appointment of the arbitrator at the instance of the State without consulting the petitioner and secondly to the appointment of the Director of DTG, contrary to Section 12 (5) read with Schedule 7 of the Act.
Analysis
The Court noted that Clause 27 of the agreement between the parties indicated that the State had no authority to unilaterally appoint the arbitrator. The State overlooked the provisions of the Act while appointing the Director of DTG as the sole arbitrator.
The Court also noted that Section 12 (5) read with Schedule 7 of the Act indicated that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subject matter of the disputes, falls under any of the categories specified in Schedule 7 shall be ineligible to be appointed as or to act as an arbitrator. Further, Clause 1 of Schedule 7 indicated that if the arbitrator is an employee, consultant, advisor, or has any either present or past business relationship with a party, it would act as an embargo. The embargo placed under Section 12(5) would continue to operate where the arbitrator is an employee, consultant, advisor or has any other past or present business relationship with the parties and this relationship would act as an obstacle or hindrance for such person to act as an arbitrator or continue as an arbitrator.
The Court remarked that the hallmark of arbitration proceedings is that the arbitrator is required to rise above the partisan interest. The adjudication by an arbitrator should be such that neither of the parties would get even an iota of doubt concerning the impartiality of the arbitrator. To rule out any such remote doubt arising in the minds of the parties, Section 12(5) has been inserted by the Parliament foreseeing such contingencies. It has been prescribed under Schedule 7 that such a relationship, which can be construed as raising a remote doubt about the impartiality of the arbitrator should act as an embargo for the arbitrator to continue if already appointed or act as a bar for being appointed as arbitrator. If such an arbitrator were to fall within the four corners of the definition specified in Clause 1 to 14 of Schedule 7, the embargo under Section 12(5) would necessarily surface and in such circumstances, the arbitrator will have to withdraw to allow for appointment of another arbitrator. In this regard, the Court relied upon Jaipur Zila Dugdh Utpadak Sahkari Sangh Ltd. v. Ajay Sales & Suppliers, (2021) 17 SCC 248.
Thus, the Court held that the statutory bar under Section 12(5) would squarely be applicable as the Director of DTG could not be held to be an independent and impartial arbitrator because he could be a consultant or an advisor of the respondents. The Court also held that the pleadings and other material that had come on record shall remain as it is even while appointing the new arbitrator, save and except, in case the parties want to place any additional material on record.
Accordingly, at the joint request of the parties, the Court appointed Mr. Deepak Kaushal, Senior Advocate, as the Arbitrator. The Court also directed the Director of DTG to hand over the records of the proceedings through the respondents to the new Arbitrator.
[OASYS Cybernetics Pvt. Ltd. v. State of H.P., 2025 SCC OnLine HP 1812, decided on 19-05-2025]
*Judgment authored by: Justice Tarlok Singh Chauhan
Advocates who appeared in this case :
For the petitioner: Senior Advocate Sanjeev Bhushan and Rajesh Kumar
For the respondent: Advocate General Anup Rattan, Ramakant Sharma, Navlesh Verma, Sharmila Patial, Additional Advocate General Sushant Keprate, and Deputy Advocate General Raj Negi
Buy Arbitration and Conciliation Act, 1996 HERE
