Introduction

The case of West Haryana Highways Projects Pvt. Ltd. v. National Highways Authority Of India adjudicated by the Delhi High Court on May 15, 2017, addresses critical aspects of arbitrator eligibility and the procedural avenues available for challenging an arbitrator's appointment. The petitioner, West Haryana Highways Projects Pvt. Ltd., sought the termination of two arbitrators appointed by the respondent, National Highways Authority Of India (NHAI). The crux of the matter revolves around the ineligibility of one arbitrator based on conflicts of interest as defined under the Arbitration and Conciliation Act, 1996, specifically Section 12(5) and the Seventh Schedule.

Summary of the Judgment

The Delhi High Court, presided over by Justice Jayant Nath, examined the petition filed by West Haryana Highways Projects Pvt. Ltd. under Section 14 of the Arbitration and Conciliation Act, 1996. The petitioner challenged the appointment of Sh. R.K Jain as Co-Arbitrator, asserting that he was disqualified under Section 12(5) due to his advisory role with NHAI, thus falling under the categories outlined in the Seventh Schedule. The court agreed with the petitioner, terminating Sh. R.K Jain's mandate and directing NHAI to nominate a new arbitrator within 30 days. However, the request to terminate the mandate of the second arbitrator, Justice N. Kumar (Retd.), was dismissed as the appointment adhered to the agreed procedures.

Analysis

Precedents Cited

The judgment extensively references past cases to substantiate its stance on arbitrator eligibility:

• Progressive Career Academy Pvt. Ltd. v. Fiit Jee Ltd., ILR (2011) IV Delhi 286: Highlighted the limitations of challenging an arbitrator's appointment solely under Section 13.
• Dream Valley Farms Pvt. Ltd. v. Religare Finvest Ltd.: Demonstrated the court's authority to terminate an arbitrator's mandate when ineligibility is proven.
• Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd.: Emphasized the non-applicability of Section 13 in cases involving disqualifications under Section 12(5).
• Other notable cases include H.R.D Corporation (Marcus Oil and Chemical Division) v. Gail (India) Limited and Gurcharan Singh Sahney v. Harpreet Singh Chabbra, 2016 SCC OnLine Hyd 90, which further delineate the boundaries between Sections 13 and 14 of the Act.

Legal Reasoning

The court's reasoning was anchored in the provisions of the Arbitration and Conciliation Act, 1996. Central to this was Section 12(5), which stipulates that any person whose relationship with the parties or counsel or the subject matter of the dispute falls under the Seventh Schedule is ineligible to act as an arbitrator, notwithstanding any prior agreement. The Seventh Schedule categorizes relationships that give rise to justifiable doubts about an arbitrator's independence or impartiality, such as being an adviser or consultant to one of the parties.

In this case, Sh. R.K Jain's role as an adviser to NHAI clearly placed him within the prohibited categories, rendering his appointment invalid. The petitioner’s approach under Section 14 was appropriate, as Section 13 handles different grounds for challenge, primarily those related to bias or partiality not covered under the Seventh Schedule.

The court also highlighted the legislative intent behind Section 14, distinguishing it from Section 13, and emphasizing that Section 14 is specifically designed to address cases where an arbitrator is de jure disqualified due to relationships outlined in the Seventh Schedule. This ensures neutrality and impartiality in arbitration proceedings by providing a clear pathway for challenging such appointments directly through the courts.

Impact

This judgment sets a significant precedent in the realm of arbitration by clarifying the procedural avenues available for challenging arbitrator appointments based on stringent eligibility criteria. It reinforces the sanctity of Section 12(5) and the Seventh Schedule, ensuring that arbitrators maintain impartiality and are free from conflicts of interest.

Future cases involving arbitrator eligibility will likely reference this judgment to understand the delineation between Sections 13 and 14, especially in scenarios involving disqualifications under the Seventh Schedule. Moreover, it underscores the judiciary’s role in upholding the integrity of the arbitration process by intervening when statutory provisions are contravened.

Complex Concepts Simplified

Section 12(5) of the Arbitration and Conciliation Act, 1996

This provision declares that any person who has a relationship with the parties involved in the arbitration, their counsel, or the subject matter of the dispute, falling under specific categories listed in the Seventh Schedule, cannot serve as an arbitrator. This is irrespective of any prior agreements between the parties to the contrary.

The Seventh Schedule

The Seventh Schedule lists various relationships that could impair an arbitrator's neutrality or impartiality. For instance, if an arbitrator is an adviser, consultant, employee, or has any other business relationship with one of the parties, they are disqualified from serving in that arbitration.

Section 14 of the Arbitration and Conciliation Act, 1996

This section provides the court's jurisdiction to terminate the mandate of an arbitrator. It is applicable in cases where an arbitrator is ineligible to act, as per Section 12(5), or becomes incapable of performing their duties due to other reasons like incapacity or undue delay.

De Jure and De Facto Inability

• De Jure Inability: Legal incapacity, such as bankruptcy or criminal conviction, which prevents an arbitrator from performing their duties.
• De Facto Inability: Factual inability, such as health issues or being unavailable, which hinders the arbitrator's capacity to function effectively.

Conclusion

The Delhi High Court's decision in West Haryana Highways Projects Pvt. Ltd. v. National Highways Authority Of India reinforces the importance of maintaining impartiality and avoiding conflicts of interest in arbitration. By validating the petition under Section 14, the court has underscored the necessity for arbitrators to adhere strictly to eligibility criteria, especially those outlined in Section 12(5) and the Seventh Schedule. This judgment serves as a pivotal reference for future arbitration disputes, ensuring that the principles of fairness and neutrality are upheld in the adjudication process.

Moreover, the clear distinction drawn between Sections 13 and 14 provides clarity on the procedural mechanisms available for challenging arbitrator appointments, thereby enhancing the efficacy and credibility of arbitration as a dispute resolution mechanism in India.