ELLORA PAPER MILLS LIMITED versus THE STATE OF MADHYA PRADESH

Citation: [2022] 16 S.C.R. 399 · Decided: 04-01-2022 · Supreme Court of India · Bench: M.R. SHAH · Disposal: Appeal(s) allowed

Cited by 1 judgment(s) · cites 11 · see the full citation network in Lexace

Judgment (excerpt)

A
B
C
D
E
F
G
H
399
ELLORA PAPER MILLS LIMITED
v.
THE STATE OF MADHYA PRADESH
(Civil Appeal No. 7697 of 2021)
JANUARY 04, 2022
[M. R. SHAH AND B. V. NAGARATHNA, JJ.]
Arbitration and Conciliation Act, 1966 – s.12(5) r/w Seventh
Schedule – Arbitration and Conciliation (Amendment) Act, 2015 –
Appellant filed petition before High Court under s.14 r/w ss.11 &
15 of the Arbitration Act, 1966 seeking termination of mandate of
the originally constituted Arbitral Tribunal called as “Stationery
Purchase Committee” on the ground that the Committee comprised
of officers of the Respondent and as such had rendered themselves
ineligible to continue as arbitrators in view of s.12(5) read with
Seventh Schedule – The petition further requested for the
appointment of a new arbitrator – High Court held that the
Amendment Act, 2015 which inserted s.12(5) was effective w.e.f.
23.10.2015 and could not have retrospective operation in the
arbitration proceedings already commenced unless the parties
otherwise agreed and therefore when in the present case the Arbitral
Tribunal was constituted much prior to the Amendment Act, 2015
and the Arbitral Tribunal commenced its proceedings, s.12(5) was
not applicable – Held: The Arbitral Tribunal-Stationery Purchase
Committee consisted of officers of the Respondent-State – Therefore,
as per Amendment Act, 2015 - sub-section (5) of s.12 r/w Seventh
Schedule, all of them became ineligible to become arbitrators and
to continue as arbitrators – s.12 was amended by Amendment Act,
2015 based on recommendations of the Law Commission, which
specifically dealt with the issue of “neutrality of arbitrators” – To
achieve the main purpose for amending the provision, namely, to
provide for “neutrality of arbitrators”, sub-section (5) of s.12 lays
down that 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, he shall be ineligible to be
appointed as an arbitrator – In such an eventuality, i.e., when the
arbitration clause is found to be foul with the amended provision,
[2022] 16 S.C.R. 399
399
A
B
C
D
E
F
G
H
400
SUPREME COURT REPORTS
[2022] 16 S.C.R.
the appointment of the arbitrator would be beyond the pale of the
arbitration agreement, empowering the Court to appoint such an
arbitrator as may be permissible – That would be the effect of the
non obstante clause contained in sub-section (5) of s.12 and the
other party cannot insist upon the appointment of the arbitrator in
terms of the arbitration agreement – In the present case, the
Stationery Purchase Committee-Arbitral Tribunal comprising of
officers of the respondent-State were all ineligible to become and/
or to continue as arbitrators in view of the mandate of sub-section
(5) of s.12 r/w Seventh Schedule – Such an Arbitral Tribunal cannot
be permitted to continue and therefore a fresh arbitrator has to be
appointed as per the Arbitration and Conciliation Act, 1996.
Allowing the appeal, the Court
HELD:1.1. The present application was preferred before
the High Court invoking Section 14 read with sections 11 and 15
of the Arbitration Act, 1966 seeking termination of the mandate
of the originally constituted Arbitral Tribunal and to appoint a
new arbitrator. However, the fact remains that after the
constitution of the Arbitral Tribunal in the year 2001, no further
steps whatsoever were taken in arbitration proceedings and
therefore technically it could not be said that the arbitration
proceedings by the Arbitral tribunal- Stationery Purchase
Committee commenced. [Para 6][408-E-H]
1.2. The Arbitral Tribunal-Stationery Purchase Committee
consisted of officers of the Respondent-State. Therefore, as per
Amendment Act, 2015-Sub-section (5) of Section 12 read with
Seventh Schedule, all of them have become ineligible to become
arbitrators and to continue as arbitrators. Section 12 has been
amended by Amendment Act, 2015 based on the
recommendations of the Law Commission, which specifically dealt
with the issue of “neutrality of arbitrators”. To achieve the main
purpose for amending the provision, namely, to provide for
“neutrality of arbitrators”, sub-section (5) of Section 12 lays down
that 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, he s

Excerpt shown. Read the full judgment & AI analysis in Lexace.