Former employee not disqualified from acting as an Arbitrator, even after 2015 Amendment to the Arbitration and Conciliation Act 1996

The Supreme Court has held that the Arbitration and Conciliation Act, 1996, 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 Court observed that, even after 2015 amendment, the position remains the same, as Entry 1 to 5th Schedule of the Act does not include “past/former employees.”

The said ruling was held in the matter of Government of Haryana, PWD Haryana Vs. M/s. G.F. Toll Road Pvt. Ltd. & Ors. [Civil Appeal No. 27/2019 (Arising out of S.L.P.(C) No. 20201 of 2018)], decided on 03.01.2019.

Challenge

In this case, Indian Council of Arbitration had raised an objection to the Arbitrator nominated by the State on the ground that he was a retired employee of the State for the reason that there may be justifiable doubts with respect to his integrity and impartiality to act as an arbitrator. ICA informed the state that it had already appointed a nominee arbitrator as well as the Presiding Arbitrator. The State approached the District Court challenging this appointment. The said petition was dismissed by the District Court holding that it is not maintainable. Later, the Punjab and Haryana High Court dismissed the Civil Revision Petition filed by the state on the ground that it could raise the issue of jurisdiction under Section 16 before the arbitral tribunal itself. The state approached the Apex Court assailing this order of the High Court.

Held

Agreeing with the contentions raised by the State, the Apex court observed that the 1996 Act does not disqualify a former employee from acting as an arbitrator. It also observed that 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.

Even though the case was governed by the pre-2015 amendment law, the Bench took note of the Fifth Schedule to the 1996 Act which contains grounds to determine whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator.

It further held that an arbitrator who has “any other” past or present “business relationship” with the party is also disqualified and clarified that the word “other” used in the said Entry, would indicate a relationship other than an employee, consultant or an advisor and that the word “other” cannot be used to widen the scope of the entry to include past/former employees.