Bar on unilateral appointment of arbitrators non-derogable; no special privilege for retired judges: Madras High Court

The Madras High Court recently held that the bar under the Seventh Schedule of the Arbitration and Conciliation Act on appointing sole arbitrators unilaterally is non-derogable, and no exceptions can be made even for retired High Court judges [Prime Store v. Sugam Vanijya Holdings]. .Justice Krishnan Ramasamy said that unilateral appointment of a sole arbitrator without obtaining express agreement of the parties in writing, in terms of the proviso to Section 12(5) of the Act, was invalid."...it is significant to note that Section 12(5) r/w Seventh Schedule of the Act which deals with ineligibility of a person to be appointed as an Arbitrator, is a mandatory and non-derogable provision of the Act and it would clearly described the persons who are ineligible to be appointed as Arbitrator, i.e. as a result of them being disqualified under the Seventh Schedule. Therefore, the disqualification under the Seventh Schedule would be applicable to any person including the retired Judge...".Section 12(5) of the Act reads:"(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator: Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing.".The Court was hearing an appeal filed by retail operator company Chennai Silks, challenging an arbitral award in favour of the respondent party, Sugam Vanijya. The two parties had a dispute over their lease deed agreement and opted for arbitration. Retired Madras High Court judge Justice A Ramamoorthy was unilaterally appointed as the sole arbitrator. While Chennai Silks initially participated in the proceedings, it approached the High Court after the award was passed in favour of the respondents. It claimed that since Justice Ramamoorthy had been appointed unilaterally, the entire proceedings should be held as invalid.The respondents, however, argued that Chennai Silks had participated in the proceedings and could not cry foul at a later stage. Besides, Justice Ramamoorthy was a retired judge, a neutral party with no biases, they argued..While noting that the petitioners waived their right to object to the unilateral appointment, the Court said that as per the Supreme Court's judgment in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd, interested persons to a dispute would not only be ineligible to act as an arbitrator, but also be proscribed from appointing an arbitrator to adjudicate the dispute."It is contended on behalf of the respondents that since they nominated a retired Judge of this Court as Arbitrator, he is free from any disqualification and no bias can be attributed. However, it is significant to note that Section 12(5) r/w Seventh Schedule of the Act which deals with ineligibility of a person to be appointed as an Arbitrator, is a mandatory and non-derogable provision of the Act and it would clearly described the persons who are ineligible to be appointed as Arbitrator, i.e. as a result of them being disqualified under the Seventh Schedule."Such disqualification under the Seventh Schedule would be applicable to any person including a retired judge, the Court added. "If a retired Judge acted as an Advisor or giving opinion in the matter, will certainly comes under the category of disqualified persons category and the Act has not provided any special privileges for a retired Judge. That being the law enacted, the contention of the learned Senior counsel that the learned Arbitrator who is a retired Judge is free from bias, is not acceptable.".The Court thus set aside the arbitral award under challenge and appointed retired judge, Justice N Kirubakaran as the new arbitrator in the case..Advocate Anirudh Krishnan appeared for the petitioners. Senior Advocate PS Raman and Advocate PJ Rishikesh appeared for the respondents..[Read order]