THE GOVERNMENT OF HARYANA PWD HARYANA (B AND R) BRANCHversusM/S. G. F. TOLL ROAD PVT. LTD. & ORS.

270                      [2019]REPORTS
               SUPREME COURT    1 S.C.R. 270                 [2019] 1 S.C.R.


A     THE GOVERNMENT OF HARYANA PWD HARYANA (B AND
                       R) BRANCH
                                         v.
                  M/S. G. F. TOLL ROAD PVT. LTD. & ORS.
B                         (Civil Appeal No. 27 of 2019)
                               JANUARY 03, 2019
       [ABHAY MANOHAR SAPRE AND INDU MALHOTRA, JJ]
             Arbitration and Conciliation Act, 1996 – ss. 15, 15(2) –
      Termination of mandate and substitution of arbitrator – Government
C
      works contract – Dispute between the parties – Nomination of
      arbitrator in terms with the dispute resolution clause in the agreement
      – Indian Council of Arbitration-ICA raised objection to arbitrator
      nominated by the State that being a retired employee of the State,
      his integrity and impartiality doubtful – State sought 30 days time
D     to appoint a substitute arbitrator – Meanwhile, ICA appointed a
      nominee arbitrator on behalf of the State, as also Presiding
      arbitrator – Challenge to, by the State by filing application u/s. 15
      before the District Judge as also objection before the arbitral tribunal
      u/s. 16 – District Court held the petition not maintainable since the
      tribunal had been constituted – Revision Petition before the High
E
      Court – Dismissal of – On appeal, held: High Court failed to take
      note of s. 15(2) which provides that a substitute arbitrator must be
      appointed according to the rules that are applicable for the
      appointment of the arbitrator being replaced – ICA could not have
      usurped the jurisdiction over appointment of the nominee arbitrator
F     on behalf of the State prior to the expiry of the 30 days’ period
      requested by the State – Appointment of the nominee arbitrator on
      behalf of the State by the ICA unjustified and contrary to the Rules
      of the ICA itself – Objection of reasonable apprehension of bias
      raised as regards the arbitrator nominated by the State wholly
      unjustified and unsubstantiated – Thus, the order passed by the
G
      High Court set aside – On basis of the mutual agreement between
      both the parties, Justice S.S. Nijjar (Retd.) appointed as the Sole
      Arbitrator to adjudicate the disputes arising out of the Agreement.


H
                                        270
 GOVT. OF HARYANA PWD HARYANA (B & R) BRANCH v.                        271
           M/S. G. F. TOLL ROAD PVT. LTD.

      Disposing of the appeal, the Court                               A

       HELD: 1.1 The High Court while considering the
application under Section 15 of the Arbitration and Conciliation
Act, 1996 failed to take note of the provisions of Section 15(2) of
the Act. Section 15(2) provides that a substitute arbitrator must
be appointed according to the rules that are applicable for the        B
appointment of the arbitrator being replaced. This would imply
that the appointment of a substitute arbitrator must be according
to the same procedure adopted in the original agreement at the
initial stage. The provisions of Section 15(2) require that when
the mandate of an arbitrator terminates either by his withdrawal       C
from office, or pursuant to an agreement by the parties, or for
any reason, a substitute arbitrator shall be appointed according
to the rules applicable to the appointment of the arbitrator being
replaced. [Paras 3.1, 3.2][276-F-H; 277-C]

       1.2 Clause 39.2.2. of the agreement expressly provided that     D
each party shall nominate one arbitrator and the third arbitrator
shall be appointed in accordance with the Rules of the ICA. [Para
3.3][277-C-D]

      1.3 The appellant-State had requested for 30 days ’time to
                                                                       E
appoint another nominee arbitrator, after objections were raised
by the ICA to the first nomination. The ICA declined to grant the
period of 30 days, and instead appointed the arbitrator on behalf
of the Appellant-State. The ICA could have filled up the vacancy
only if the Appellant-State had no intention of filling up the
vacancy. The ICA could not have usurped the jurisdiction over          F
appointment of the nominee arbitrator on behalf of the State prior
to the expiry of the 30 days’ period requested by the Petitioner.
The appointment of the nominee arbitrator on behalf of the
Appellant-State by the ICA was unjustified and contrary to the
Rules of the ICA itself. [Paras 3.4, 3.5][277-E-G]
                                                                       G
      1.4 The 1996 Act does not disqualify a former employee
from acting as an arbitrator, provided that there are no justifiable
doubts as to his independence and impartiality. The fact that the
arbitrator was in the employment of the State of Haryana over 10
                                                                       H
272            SUPREME COURT REPORTS                      [2019] 1 S.C.R.


A     years ago, would make the allegation of bias clearly untenable.
      [Para 3.9][278-F-G]

             1.5 The instant case is governed by the pre-amended 1996
      Act. Even as per the 2015 Amendment Act which has inserted
      the Fifth Schedule to the 1996 Act which contains grounds to
B     determine whether circumstances exist which give rise to
      justifiable doubts as to the independence or impartiality of an
      arbitrator. Entry 1 of the Fifth Schedule and the Seventh Schedule
      are identical. The Entry indicates that a person, who is related to
      a party as an employee, consultant, or an advisor, is disqualified
C     to act as an arbitrator. The words “is an” indicates that the person
      so nominated is only disqualified if he/she is a present/current
      employee, consultant, or advisor of one of the parties. An
      arbitrator who has “any other” past or present “ business
      relationship “ with the party is also disqualified. The word “other”
      used in Entry 1, would indicate a relationship other than an
D     employee, consultant or an advisor. The word “other” cannot be
      used to widen the scope of the entry to include past/former
      employees. [Para 3.10][278-G-H; 279-B-D]
            1.6 The ICA made only a bald assertion that the nominee
      arbitrator was a retired employee of the Appellant-State, and as
E     such would not be independent and impartial. The objection of
      reasonable apprehension of bias raised was wholly unjustified and
      unsubstantiated, particularly since the nominee arbitrator was a
      former employee of the State over 10 years ago. The apprehension
      of the respondents was hence unjustified since the test to be
F     applied for bias is whether the circumstances are such as would
      lead to a fair-minded and informed person to conclude that the
      arbitrator was infact biased. This would not disqualify him from
      acting as an arbitrator. Mere allegations of bias are not a ground
      for removal of an arbitrator. Furthermore, the appointment had
      been made prior to the 2015 Amendment Act when the Fifth
G     Schedule was not inserted. Hence, the objection raised by the
      ICA was untenable on that ground also. The judgment passed by
      the High Court is set aside [Paras 3.11, 3.12][279-E-G]
           1.7 During the conclusion of arguments, the Counsel for
      both parties mutually agreed to the appointment of Justice S.S.
H
 GOVT. OF HARYANA PWD HARYANA (B & R) BRANCH v.                             273
           M/S. G. F. TOLL ROAD PVT. LTD.

Nijjar (Retd.) as the Sole Arbitrator to adjudicate the disputes            A
arising out of the Concession Agreement. The mandate of the
three-member arbitral tribunal constituted under the ICA Rules
is terminated. The Sole Arbitrator shall proceed in continuation
of the previously constituted arbitral tribunal. [Para 4][279-H;
280-A-C]
                                                                            B
        ACC Ltd. v. Global Cements Ltd. (2012) 7 SCC 71:[2012]
        6 SCR 215 – referred to.
        Locabail Ltd. v. Bayfield Properties 2000 (1) All ER
        65; Re Medicaments and related Classes of Goods
        (No.2) 2002 (1) All ER 465 – referred to.                           C

                         Case Law Reference
        [2012] 6 SCR 215         referred to               Para 3.2
        CIVIL APPELLATE JURISDICTION: Civil Appeal No. 27 of                D
2019.
      From the Judgment and Order dated 01.03.2018 of the High Court
of Punjab & Haryana at Chandigarh in CR No. 3279 of 2017 (O&M).
    Hemant Gupta, AAG, Ms. Sunakshi Gupta, Alok Sharma, Sanjay
                                                                            E
Kumar Visen, Advs. for the Appellant.
     Gopal Jain, Sr. Adv., Salim Inamdar, Hasan Murtaza, Aditya Panda,
Ravi Sehgal, Prabal Mehrotra, M/s. Khaitan & Co., Advs. for the
Respondents.
        The Judgment of the Court was delivered by                          F

        INDU MALHOTRA, J.
        Leave granted.
      1. The present Civil Appeal has been filed by the Appellant –         G
State of Haryana to challenge the Order dated 01.03.2018 passed by
the High Court of Punjab and Haryana at Chandigarh in C.R. No. 3279/
2017.
       2. The factual matrix leading to the filing of the present Appeal,
briefly stated is, as under:                                                H
274            SUPREME COURT REPORTS                           [2019] 1 S.C.R.


A           2.1. On 12.12.2008 the Appellant – State issued a Letter of
      Acceptance to Respondent No. 1 - M/s. G. F. Toll Road Pvt. Ltd. for
      execution of a works contract for construction, operation and
      maintenance of Gurgaon- Faridabad Road and Ballabhgarh-Sohna Road
      on BOT (Build, Operate and Transfer) basis.
B            2.2. A Concession Agreement was entered into between the
      parties on 31.01.2009. The period of construction was 24 months from
      31.05.2009. The said agreement contained a dispute resolution clause
      which is set out hereinbelow:
            “39.2 Arbitration
C           39.2.1. Any dispute, which is not resol ved amicably as
            provided in Clause 39.1 shall be finally decided by reference
            to arbitration by a Board of Arbitrators, appointed pursuant
            to Clause 39.2.2. sub-clause (b) below. Such arbitration shall
            be held in accordance with the Rules of Arbitration of the
D           Indian Council of Arbitration and shall be subject to the
            provisions of the Arbitration Act.
            39.2.2. There shall be a Board of three arbitrators of whom
            each party shall select one and the third arbitrator shall be
            appointed in accordance with the Rul es of Arbitration of the
E           Indian Council of Arbitration.”
                                                           (Emphasis supplied)
             2.3. During the execution of the Agreement, disputes arose
      between the parties. The Respondent No. 1 - M/s. G. F. Toll Road Pvt.
      Ltd. vide Letter dated 30.03.2015 to Respondent No. 2 – Indian Council
F     of Arbitration (“ICA”) invoked the Arbitration Clause, and requested
      the ICA to commence arbitration proceedings. On 05.05.2015,
      Respondent No. 1 - M/s. G. F. Toll Road Pvt. Ltd. appointed a retired
      Engineer-in-Chief – Mr. Surjeet Singh as their nominee Arbitrator.
            The Appellant – State herein also nominated a retired Engineer-
G     in-Chief, Mr. M.K. Aggarwal as their nominee arbitrator vide Letter
      dated 08.06.2015.
             2.4. The Respondent No. 2 - ICA vide Letter dated 03.08.2015
      raised an objection to the arbitrator nominated by the Appellant – State
      on the ground that he was a retired employee of the State, and there
H     may be justifiable doubts with respect to his integrity and impartiality to
 GOVT. OF HARYANA PWD HARYANA (B & R) BRANCH v.                                 275
  M/S. G. F. TOLL ROAD PVT. LTD. [INDU MALHOTRA, J.]

act as an arbitrator. The Respondent No. 2 - ICA advised the State to           A
reconsider its nomination.
       The Appellant – State refuted the objection raised by Respondent
No. 2 – ICA on the ground that there was no rule which prohibited a
former employee from being an arbitrator, and there could not be any
justifiable doubt with respect to his impartiality since the nominee            B
arbitrator had retired over 10 years ago.
       On 24.09.2015, Respondent No. 1 - M/s. G. F. Toll Road Pvt. Ltd.
raised an objection regarding the independence and impartiality of the
Appellant’s nominee arbitrator – Mr. M.K. Aggarwal. Respondent No.
2 – ICA forwarded the said objection to the Appellant – State.
                                                                                C
       2.5. The Respondent No. 2 – ICA vide its Letter dated
30.10.2015 reiterated that it has been firmly established that Mr. M.K.
Aggarwal had a direct relationship with the Appellant – State as its
former employee, which may raise justifiable doubts as to his
independence and impartiality in adjudicating the dispute. The Respondent
No. 2 – ICA stated that it was in the process of appointing an arbitrator       D
in place of Mr. M.K. Aggarwal and its decision shall be communicated
to the Appellant.
       2.6. In response, the Appellant – State vide Letter dated
16.11.2015 requested the Respondent No. 2 – ICA for a period of 30
days to appoint a substitute arbitrator.                                        E
       In the meanwhile, the Respondent No. 2 – ICA vide its Letter
dated 23.11.2015 informed the Appellant – State that it had already
appointed a nominee arbitrator on behalf of the Appellant, as well as the
Presiding Arbitrator.
       2.7. Aggrieved by the appointment made by Respondent No. 2               F
– ICA of the nominee arbitrator, the Appellant – State, filed an application
under Section 15 of the Arbitration and Conciliation Act, 1996 (“the Act”)
before the District Court, Chandigarh on the ground that the constitution
of the arbitral tribunal was illegal, arbitrary and against the principles of
natural justice.
                                                                                G
       2.8. The Appellant – State also raised an objection before the
Arbitral Tribunal under Section 16 on the issue of jurisdiction.
       On 08.12.2016, the arbitral tribunal ordered that it shall not hear
the objection under Section 16 of the Act, and shall await the decision of
the District Court, Chandigarh.
                                                                                H
276             SUPREME COURT REPORTS                            [2019] 1 S.C.R.


A            2.9. The District Court vide its Order dated 27.01.2017 held that
      the Petition was not maintainable, since the Arbitral Tribunal had been
      constituted, and an objection under Section 16 should be raised before
      the Tribunal to rule on its own jurisdiction.
             2.10. Aggrieved by the Order dated 27.01.2017, the Appellant –
B     State filed a Civil Revision Petition before the Punjab and Haryana High
      Court, Chandigarh being C. R. No. 3279 of 2017.
             2.11. The learned Single Judge of the Punjab and Haryana High
      Court vide the impugned Order dated 01.03.2018 dismissed the Civil
      Revision Petition on the ground that the Appellant – State could raise the
C     issue of jurisdiction under Section 16 before the arbitral tribunal.
             It was further held that in a situation where an objection is raised
      regarding the nomination of an arbitrator by one of the parties, and the
      agreement is silent with regards to the mode of appointment of a
      substitute arbitrator, the rules applicable would be those of the Institution
D     under which the arbitration is held. Therefore, in the facts of the present
      case, Rules 25 and 27 of the ICA Rules would apply.
            2.12. Subsequent to the impugned Judgment being passed, the
      Application under Section 16 filed by the Appellant – State was dismissed
      by a non-speaking Order of the Arbitral Tribunal dated 12.05.2018.
E
            2.13. Aggrieved by the Order dated 01.03.2018 and 12.05.2018,
      the Appellant – State has filed the present Petition.
            3. We have heard the learned Counsel for both the parties, and
      perused the pleadings.
F
            3.1. The High Court while considering the application under
      Section 15 failed to take note of the provisions of Section 15(2) of the
      Act.
             Section 15(2) provides that a substitute arbitrator must be appointed
G     according to the rules that are applicable for the appointment of the
      arbitrator being replaced. This would imply that the appointment of a
      substitute arbitrator must be according to the same procedure adopted
      in the original agreement at the initial stage.
            Section 15(2) of the Act reads as under :
H
    GOVT. OF HARYANA PWD HARYANA (B & R) BRANCH v.                                277
     M/S. G. F. TOLL ROAD PVT. LTD. [INDU MALHOTRA, J.]

        “15. Termination of mandate and substitution of arbitrator.—              A
        (1) …
        (2) Where the mandate of an arbitrator terminates, a substitute
        arbitrator shall be appointed according to the rules that were
        applicable to the appointment of the arbitrator being
                                                                                  B
        replaced.”
                                                      (Emphasis supplied)
       3.2. The provisions of Section 15(2) require that when the mandate
of an arbitrator terminates eitherby his withdrawal from office, or
pursuant to an agreement by the parties, or for any reason, a substitute          C
arbitrator shall be appointed according to the rules applicable to the
appointment of the arbitrator being replaced.
       This Court in ACC Ltd. v. Global Cements Ltd.1 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,   D
even if the agreement does not specifically provide so.
       3.3. In the present case, Clause 39.2.2. of the agreement expressly
provided that each party shall nominate one arbitrator, and the third
arbitrator shall be appointed in accordance with the Rules of the ICA.
      3.4. The Appellant – State had vide Letter dated 16.11.2015                 E
requested for 30 days’ time to appoint another nominee arbitrator, after
objections were raised by the ICA to the first nomination. The ICA
declined to grant the period of 30 days, and instead appointed the arbitrator
on behalf of the Appellant – State. The ICA could have filled up the
vacancy only if the Appellant – State had no intention of filling up the
                                                                                  F
vacancy. The ICA could not have usurped the jurisdiction over
appointment of the nominee arbitrator on behalf of the State prior to the
expiry of the 30 days’ period requested by the Petitioner.
       3.5. The appointment of the nominee arbitrator on behalf of the
Appellant – State by the ICA was unjustified and contrary to the Rules
                                                                                  G
of the ICA itself.
      3.6. The objection raised by the ICA with respect to the
appointment of Mr. M.K. Aggarwal as the nominee of the State was
wholly unjustified and contrary to the provisions of the 1996 Act.
1
    (2012) 7 SCC 71
                                                                                  H
278               SUPREME COURT REPORTS                      [2019] 1 S.C.R.


A            3.7. The objection raised by Respondent No. 2 – ICA to the
      arbitrator nominated by the Appellant – State, was that the nominee
      arbitrator was a retired employee of the Appellant – State, and as such
      there may be justifiable doubts to his independence and impartiality to
      act as an arbitrator.
B            3.8. The said objection was refuted by the Appellant – State on
      the ground that the nominee arbitrator was a Chief Engineer who retired
      over 10 years ago from the services of the State. The apprehension of
      the Respondents was hence unjustified since the test to be applied for
      bias is whether the circumstances are such as would lead to a fair-
      minded and informed person to conclude that the arbitrator was infact
C     biased.
             In Locabail Ltd. v. Bayfield Properties2, the House of Lords
      held that :
               “The greater the passage of time between the event relied on
D              as showing a danger of bias and the case in which the
               objection is raised, the weaker (other things being equal) the
               objection will be.”
             The Court of Appeal in Re Medicaments and related Classes
      of Goods (No.2)3 while propounding the ‘real danger’ test for bias held
E     that :
               “The question is whether the fairminded and informed
               observer, having considered the facts, would conclude that
               there was a real possibility that the Tribunal was biased.”
             3.9. The 1996 Act does not disqualify a former employee from
F     acting as an arbitrator, provided that there are no justifiable doubts
      as to his independence and impartiality.
            The fact that the arbitrator was in the employment of the State of
      Haryana over 10 years ago, would make the allegation of bias clearly
      untenable.
G           3.10. The present case is governed by the pre-amended 1996
      Act. Even as per the 2015 Amendment Act which has inserted the
      Fifth Schedule to the 1996 Act which contains grounds to determine
      whether circumstances exist which give rise to justifiable doubts as
      2
          2000 (1) All ER 65
      3
H         2002 (1) All ER 465
 GOVT. OF HARYANA PWD HARYANA (B & R) BRANCH v.                                279
  M/S. G. F. TOLL ROAD PVT. LTD. [INDU MALHOTRA, J.]

to the independence or impartiality of an arbitrator. The first entry to the   A
Fifth Schedule reads as under :
      “Arbitrator’s relationship with the parties or counsel
      1. The Arbitrator is an employee, consultant, advisor or has
         any other past or present business relationship with a
         party.”                                                               B

                                                      (Emphasis supplied)
       Entry 1 of the Fifth Schedule and the Seventh Schedule are
identical. The Entry indicates that a person, who is related to a party as
an employee, consultant, or an advisor, is disqualified to act as an           C
arbitrator. The words “is an” indicates that the person so nominated is
only disqualified if he/she is a present/current employee, consultant, or
advisor of one of the parties.
       An arbitrator who has “any other” past or present “business
relationship” with the party is also disqualified. The word “other” used       D
in Entry 1, would indicate a relationship other than an employee, consultant
or an advisor. The word “other” cannot be used to widen the scope of
the entry to include past/former employees.
       3.11. The ICA made only a bald assertion that the nominee
arbitrator – Mr. M. K. Aggarwal would not be independent and impartial.
                                                                               E
      The objection of reasonable apprehension of bias raised was wholly
unjustified and unsubstantiated, particularly since the nominee arbitrator
was a former employee of the State over 10 years ago. This would not
disqualify him from act as an arbitrator. Mere allegations of bias are not
a ground for removal of an arbitrator.
                                                                               F
       It is also relevant to state that the appointment had been made
prior to the 2015 Amendment Act when the Fifth Schedule was not
inserted. Hence, the objection raised by the ICA was untenable on that
ground also.
      3.12. In this view of the matter, the impugned judgment dated            G
01.03.2018 passed by the Punjab & Haryana High Court in C.R. No.
3279.2017 is set aside.
     4. During the conclusion of arguments, the counsel for both parties
mutually agreed to the arbitration being conducted by a Sole Arbitrator
                                                                               H
280                SUPREME COURT REPORTS                       [2019] 1 S.C.R.


A     in supersession of the arbitration clause in the agreement which provided
      for a three-member arbitration panel.
            The Counsel for both parties mutually agreed to the appointment
      of Justice S.S. Nijjar (Retd.) as the Sole Arbitrator to adjudicate the
      disputes arising out of the Concession Agreement dated 31.01.2009.
B            Accordingly, the mandate of the three-member arbitral tribunal
      constituted under the ICA Rules on 05.12.2015 stands terminated. The
      Sole Arbitrator shall proceed in continuation of the previously constituted
      arbitral tribunal. The material already on record shall be deemed to have
      been received by the Sole Arbitrator.
C             The Appeal is disposed of accordingly.


      Nidhi Jain                                                 Appeal disposed of.


D




E




F




G




H