Arbitration In IndiaArbitral Award cannot be set aside solely due to non-compliance of the disclosure requirements of Arbitrator

The Calcutta High Court in West Bengal Housing Board v. M/s. Abhisek Construction [Arbitration Petition 189 of 2019 decided on 11.04.2023], held that non-disclosure by the Arbitrator as mandated in Section 12(1) of the A&C Act cannot be a sole ground for setting aside an Arbitral Award under Section 34 of the A&C Act.

FACTS

The West Bengal Housing Board (hereinafter referred to as “the Petitioner”), had put up an invitation for tender on construction of roads with specific instructions on inclusion of “paver blocks, driveways, pathways & open garages of M.I.G. and L.I.G. clusters of chequered tiles at Eastern High/Grove/Nook Housing Project of West Bengal Housing Board at New Town, Kolkata”.

The M/s. Abhisek Construction (hereinafter referred to as “the Respondent”) had submitted its bid for  the tender,  which was accepted by the Petitioner  vide  letter  dated on 30.04.2010.  The parties entered into a formal agreement on 19.05.2020, pursuant to which the Petitioner issued work order to the Respondent.

The Respondent vide letter dated 12.03.2012, raised claims which were rejected by the Petitioner. Further, the Respondent invoked Arbitration and requested the Petitioner to appoint an Arbitrator vide letter dated 28.03.2012. The Petitioner pursuant to the letter, nominated Shri Santanu Basu Rai Chaudhari, retired Engineer-in-charge as the sole Arbitrator.

The Arbitral Award was passed  on 23.11.2018, whereby the Respondent was awarded Rs. 41,82,385/- (Rupees Forty One Lakhs Eighty Two Thousand Three Hundred Eighty Five Only ) along with simple interest at the rate of 10% from the date of Award till the date of payment (hereinafter referred to as the “Impugned Award”). The Petitioner being aggrieved by the Award preferred an application under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “A&C Act”).

ISSUES BEFORE THE HIGH COURT

1. Whether the provisions of the 2015 Amendment Act regarding the unilateral appointment of Arbitrator would apply to the Arbitral proceedings initiated before the enactment of the Amendment Act?
2. Whether non-disclosure by the Arbitrator as mandated under Section 12(1) of the A&C Act can be a ground for setting aside an Arbitral Award?

CONTENTIONS OF THE PARTIES

The Petitioner contended that the unilateral appointment of the Sole Arbitrator is impermissible under Section 12 (5) of the A&C Act. It was submitted that the Arbitrator was appointed at the request of the Respondent and was an interested party. Hence, the Impugned Award being non-est in law and is liable to be set aside.

It was asserted that a written disclosure of impartiality and/or independence of the Arbitrator is a sine qua non for the validity of an Arbitral Award. Therefore, in absence of written disclosure of impartiality and/or independence of the Arbitrator, the Impugned Award needs to be set aside.

The Respondent contended that the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as the “2015 Amendment Act”)  came into force on 23.10.2015, prior to that, parties were free to agree on a procedure for the appointment of an Arbitrator. Thus, any application under and hence, in view of the said, an application under Section 11(6) of the A&C Act in the pre-amendment area would  not be maintainable.

It was further submitted that in the pre-amendment era, the Petitioner had the right to challenge the impartiality or independence of the Arbitrator under Section12, 13 and 14 of the A&C Act. Hence, as the impartiality or independence was not challenged by the Petitioner, he cannot raise the objections regarding the jurisdiction of the Arbitrator.

The Respondent argued that the 2015 Amendment Act was further amended by Arbitration and Conciliation (Amendment) Act, 2019; which was enacted during the pendency of the Arbitral proceedings. Hence, none of the provisions of the Amended A&C Act is applicable to the Arbitral proceedings but are applicable to the court proceedings pursuant to the Arbitration.  Furthermore, the mandate of notice under Section 21 of the A&C Act for invocation of Arbitration has been brought under the 2015 Amendment Act.

It was argued that the disclosure of impartiality and independence of the Arbitrator cannot be challenged under Section 34 of the A&C Act after the Arbitral Award is passed.

DECISION AND FINDINGS

The Calcutta High Court relied on   Manish Anand v. Fiitjee Ltd. [2018 SCC OnLine Del 7587] and held that mere non-disclosure under Section 12(1) of the A&C Act would not become a ground for setting aside the application filed under Section 34 of the A&C Act. Moreover, pursuant to the provision of Section 4 of the A&C Act, as the Petitioner had not challenged the non-disclosure requirement earlier, it cannot be challenged under Section 34 of the A&C Act. The High Court further opined that the disclosure requirement under Section 12(1) of the A&C Act cannot be a sole ground for setting aside of the Arbitral Award.

The High Court further opined that the compliance of Section 12 read with Schedule VII of the A&C Act is a sine qua non for any arbitral reference to gain recognition and validity. Moreover, the Arbitral proceedings which are initiated with illegal act vitiates the entire Arbitral proceedings and the Award and cannot be validated by the Courts at any stage.

The mandate of compliance of Section 12 read with Schedule VII of the A&C Act would come into enforcement after the enactment of 2015 Amendment Act. Further the High Court relied on Union of India v. Parmar Construction [(2019) 15 SCC 682] and held that the mandatory notice under Section 21 of the A&C Act is also effective after the enactment of 2015 Amendment Act.

In regard to the unilateral appointment, the Calcutta High Court held that an arbitral reference which starts with an illegal act, vitiates the purpose of the arbitral proceedings, including the Award and such Award should be declared void ab initio.  However, the Respondent is correct in contending that there was no bar placed on unilateral appointment at the time when the Arbitrator was appointed and that the Petitioner by participating in the proceedings has waived off his right to object and has slept on his rights.

The High Court further relied on Ratnam Sudesh Iyer v. Jackie Kakubhai Shroff [(2021) 11 SCR 97] and Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. [(2018) 6 SCC 287] and observed that the provisions of the 2015 Amendment Act would be made applicable only to the Arbitral and Judicial proceedings initiated after the enactment. Thus, in the present case, unilateral appointment of the Arbitrator is valid as per the pre-amended A&C Act. Furthermore, the Petitioner had participated in the Arbitral proceedings and hence, had waived off his right to challenge the non-compliance of the disclosure mandate under Section 4 of the A&C Act.

Hence, dismissed the present petition.

AMLEGALS REMARKS

The Calcutta High Court has fundamentally upheld that the Amendment Act cannot have retrospective effect. Furthermore, the amendment cannot interfere into the proceedings initiated prior to the Amendment. Moreover, non-compliance of the disclosure mandate cannot be a sole reason to  set aside an Arbitral Award. When both the parties have participated in an Arbitral proceeding, and the right to challenge the non-disclosure of the Arbitrator was waived off during the proceedings and hence, cannot be availed after the passing of an Award.

– Team AMLEGALS assisted by Ms. Aayushi Udeshi (Intern)

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