Introduction 

• This is a landmark judgment which discusses the eligibility of a person to nominate an arbitrator who is himself ineligible to be an arbitrator. 
• This judgment was delivered by Justice Dipak Misra, Justice AM Khanwilkar and Justice MM Shantanagoudar.  

Facts 

• The Respondent company is engaged in the business of procuring bulk material handling equipment. 
• The Respondent issued a purchase order to the Appellant for the complete design, manufacturing etc. 
• The Appellant invoked arbitration and a former Chief Justice of High Court was also appointed as arbitrator by the Managing Director. 
• After the appointment was made a ground was put forth by the Appellant that by virtue of Section 12 (5) of the Arbitration and Conciliation Act, 1996 (A & C Act) read with Fifth and Seventh Schedule the Managing Director had become ineligible to act as an arbitrator and hence he had no power to nominate. 
• The High Court in this case held that the right of one party to appoint a sole arbitrator cannot be taken away. 
• Hence, an appeal was filed.   

Issue Involved  

• Whether the Managing Director, after becoming ineligible by operation of law, is  still eligible to nominate an arbitrator? 

Observations 

• The Court observed that Section 12 (5) of A & C Act deals with three components: the parties can waive the applicability of the sub-section; the said waiver can only take place subsequent to dispute having arisen between the parties; and such waiver must be by an express agreement in writing 
• Further, it was observed by the Court that authority in State of West Bengal v. Associated Contractors (2014) cannot be relied upon as the same does not relate to the conundrum referred to in this case. 
• The Court noted that in present facts the following two clauses in the arbitration agreement should be considered: 
  • Clause (c) states that all disputes which cannot be settled by mutual negotiation shall be referred to and determined by arbitration as per the Act, as amended. 
  • Clause (d) provides that unless otherwise provided, any dispute or difference between the parties in connection with the agreement shall be referred to the sole arbitration of the Managing Director or his nominee. 
• It is inconceivable in law that person who is statutorily ineligible can nominate a person. Needless to say, once the infrastructure collapses, the superstructure is bound to collapse. One cannot have a building without the plinth. 
• Thus, once the identity of the Managing Director as the sole arbitrator is lost, the power to nominate someone else as an arbitrator is obliterated.

Conclusion

• This judgment discusses an important principle regarding the appointment of arbitrators. 
• The judgment lays down that if a person is ineligible to be appointed as arbitrator such a person cannot nominate the arbitrator.