WHO CAN BE AN ARBITRATOR IN A CPWD DISPUTE

– By Jos Chiramel, Advocate, Supreme Court of India

Arbitrators are appointed for deciding CPWD disputes in terms of Clause 25 of the Standard Form No. CPWD 7 and 8 and other relevant clauses in Form No. CPWD 9, 11, 11-A and 12 relating to matters specified therein, and the proceedings are conducted as per provisions of the Arbitration & Conciliation Act, 1996. Government of India have appointed a panel of Arbitrators in the Ministry of Urban Development whose offices are located in New Delhi, Mumbai and Kolkata. As per the practice that was prevalent in CPWD, the contractor could give a list of disputes to the Chief Engineer, and it was the Chief Engineer who appointed an Arbitrator from the panel of Arbitrators of the Ministry.

The Arbitration & Conciliation Act, 1996 was amended by the Amendment Act of 2015 bringing in drastic changes, including in Section 12 of the Act with regard to grounds for challenge to the appointment of the Arbitrator. Sub-section (1) of Section 12 was entirely substituted with a new sub-section stating therein the circumstances that may affect his impartiality which are specifically stated in Schedule V as including the grounds stated therein. A new sub-section (5) is added after sub-section (4) as it stood earlier, stating therein that a person who falls under any of the categories specified in Schedule VII of the Act shall be ineligible to be appointed as an arbitrator. Incidentally, all the 19 clauses of Schedule VII are practically verbatim repetition of the first 19 clauses of Schedule V of the amended Act.

Clause 1 of Schedules V and VII refers to an arbitrator, inter alia who is an employee of a party. Clause 12 of Schedules V and VII deals with an arbitrator who is a manager, director or part of the management, or has a similar controlling influence in one of the parties. Hence a serving officer or employee of CPWD notwithstanding the fact that he may either be directly employed in CPWD (irrespective of the Division in which he may be employed – as CPWD has to be seen as a whole and not in relation to its divisions) or while on deputation with any other organization including the parent Ministry namely the Ministry of Urban Development, cannot act as an Arbitrator in a dispute to which CPWD is a party, as per the above amended provisions of the Act.

We may state here that none of the clauses of Schedules V and VII of the amended Act provides for any express bar of retired officials of CPWD from acting as Arbitrators, and nor any time or period bar is provided from the date when they cease to be in the service of CPWD to act as Arbitrators in cases in which CPWD is a party. The only clause which if at all deals with past relationship of a person with CPWD is Clause 1 which is common to Schedules V and VII of the amended Act. Technically it speaks only of a person in the present tense who is an employee, consultant or advisor, and in the past tense, of an consultant or advisor, inasmuch as much as the words “or has any other past or present business relationship” can only relate to the latter and not the former, as an employee by no stretch of imagination can have a business relationship with the employer. We may however state that Clause 1 is badly drafted, where the word ‘business’ ought not to have appeared at all, and one wonders how this word has crept in at all, as neither the employee nor the consultant or for that matter the advisor has any affinity to the said word. We are therefore constrained to expunge this word ‘business’ altogether from Clause 1 of Schedules V and VII of the amended Act, and we would not be wrong in doing so, inasmuch as, a close reading of Explanation 1 to sub-section (1) of Section 12 as substituted by the Amendment Act 2015 clearly says that the grounds mentioned in Schedule V of the Act “shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator”, and a guide can only act as a guide to one’s destiny and the lord of one’s destiny. Hence, once the word ‘business’ is removed, we are of the opinion that an officer or employee of CPWD on ceasing to be in the service of CPWD would not be entitled to be appointed as an Arbitrator for a period of three years. That apart, the bar would be permanent, if such officer has in fact dealt with the work involved in the dispute any level whatsoever.

Clause 22 of Schedule V of the amended Act provides that in case an arbitrator has within the past three years been appointed as an arbitrator on two or more occasions by one of the parties or an affiliate of one of the parties, the same may constitute a ground that gives justifiable doubts as to the independence or impartiality of the arbitrator. There is no similar ground in Schedule VII with regard to grounds of ineligibility of an Arbitrator, and thus the likely challenge to his appointment is limited under the ground specified in Schedule V of the Act. In our view the ground of challenge under Clause 22 of Schedule V is only with regard to appointment by a party of a person as their Nominee Arbitrator, and not where a party such as CPWD has the right under contract to appoint a Sole Arbitrator, as would be apparent from the language used in Clause 22 of Schedule V. Our said view is further supported by Explanation 3 to Schedule V as inserted by the Amendment Act to the effect that for removal of doubts it is clarified that it may be the practice in certain specific kinds of arbitration, such as maritime or commodities arbitration, to draw arbitrators from a small, specialized pool, and if in such fields it is the custom and practice for parties frequently to appoint the same arbitrator in different cases, this is a relevant fact to be taken into account while applying the rules set out in Schedule V of the Act. In this regard it is also noteworthy that as per provisions of the amended Act, there is no bar on one of the parties appointing a sole arbitrator, if the contract provides as such.

It is provided in Clause 24 of Schedule V that a further ground of challenge is that an arbitrator currently serves, or has served within the past three years, as arbitrator in another arbitration in a related issue involving one of the parties or an affiliate of one of the parties. This bar, which is also limited to Schedule V relates only to another arbitration on a related issue. Here again, Explanation 3 to Schedule V as explained above, will apply with full force.

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