Ineligibility Of Arbitrator As Per S.12(5) Arbitration Act Can’t Make Arbitration Clause Itself Invalid: Allahabad High Court:
CASE TITLE: M/S Bansal Construction Office v. Yamuna Expressway Industrial Development Authority And 2 Others 2023 LiveLaw (AB) 250 [Arbitration And Conciliation APPL.U/S11(4) No. – 142 of 2019]
DECIDED ON: 04.08.2023
CORAM: Hon’ble Ashwani Kumar Mishra,J.
INTRODUCTION
The Allahabad High Court has ruled that the complete arbitration arrangement will not become void solely due to the fact that the process of selecting the arbitrator, as outlined in the agreement, is prohibited by Section 12(5) of the Arbitration and Conciliation Act, 1996.
FACTS
The Court ruled that the inclusion of Section 12(5) in the Arbitration and Conciliation Act, 1996 was intended to introduce principles of fairness and autonomy in the arbitrator selection process. Consequently, the presence of an arbitration clause in a contract cannot be interpreted in a strict manner that would exclude the possibility of arbitration itself.
The applicant was granted a contract for constructing roads near Usmanpur village, which was completed by June 30, 2017. Payments were disbursed by the authority based on ongoing bills. However, deductions were made in the final bill, leading to a dispute.
The applicant repeatedly requested the appointment of an arbitrator, which the YEIDA (Yamuna Expressway Industrial Development Authority) denied, citing that the arbitration clause was invalidated by Section 12(5) of the 1996 Act. According to Clause 33 of the contract, only the Chief Executive Officer of YEIDA is eligible to arbitrate in this matter.
Section 12(5) of the Act states that irrespective of any contrary agreements, an individual cannot be appointed as an arbitrator if they have any affiliations with either party or their legal representatives as outlined in the Seventh Schedule of the Act, unless both parties provide written consent.
The applicant’s legal representative divided the arbitration agreement into two parts: one pertaining to the dispute’s referral to an arbitrator, and the other outlining the procedure for such reference. It was further argued that the statutory provision of Section 12(5) should take precedence over the contractual autonomy granted by the arbitration agreement.
Furthermore, it was emphasized that the possibility of arbitration shouldn’t be denied solely due to a statutory provision overriding the arbitrator appointment method outlined in the agreement.
The respondent’s counsel countered that since the CEO of YEIDA couldn’t appoint an arbitrator due to Section 12(5), arbitration couldn’t be pursued at all. Citing a previous ruling by the Court in Arbitration Application No. 54 of 2017, it was argued that Section 12(5) prevented the arbitrator from arbitrating any dispute. Additionally, in the absence of a specific clause recording consent from both parties, arbitration reference couldn’t be initiated.
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CASE ANALYSIS AND DECISION
The Court noted that it is essential to interpret the arbitration clause “in a manner that reveals the genuine intention of the parties,” despite its wording seeming to exclude arbitration under Section 12(5).
In the ongoing case, when selecting an arbitrator, none of the parties involved can maintain authority while disregarding the arbitration process itself. Clause 33 of the contract in question would be secondary to the influence of Section 12(5) of the Act.
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Written by- Mansi Malpani