TRF LTD. versus ENERGO ENGINEERING PROJECTS LTD.

Citation: [2017] 7 S.C.R. 409 · Decided: 03-07-2017 · Supreme Court of India · Bench: DIPAK MISRA · Disposal: Appeal(s) allowed

Cited by 9 judgment(s) · cites 11 · see the full citation network in Lexace

Judgment (excerpt)

[2017] 7 S.C.R. 409 
TRFLTD. 
v. 
ENERGO ENGINEERING PROJECTS LTD. 
(Civil Appeal No. 5306 of2017) 
JULY 03,2017 
(DIPAK MISRA, A. M. KHANWILKAR AND 
MOHAN M. SHANTANAGOUDAR, JJ.I 
Arbitration and Conciliation Act, 1996-s.12(5)-Appointment 
A 
B 
of arbitrator by nomination - Any person falling under any of 
categories specified in the seventh schedule shall be ineligible to 
C 
be appointed as arbitrator - Such person who is statutorily ineligible 
cannot nominate a person - In the instant case, since the Managing 
Director of the respondent becomes ineligible to act as an arbitrator 
subsequent to the amendment in the Act, he could also not have 
nominated any other person as arbitrator. 
' 
. Allowing the appeals and remitting the matters to the High 
Court, the Court 
HELD: 1. Sub-section (5) of Section 12 categorically lays 
down that if a person whose relationship with the parties or the 
counsel or the subject matter of dispute falls under any of the 
categories specified in the Seventh Schedule shall be ineligible 
to be appointed as an arbitrator. There is a qualifier which 
indicates that parties may, subsequent to the disputes arisen 
between them, waive the applicability by express agreement in 
writing. The qualifier finds place in the proviso appended to sub-
section (5) of Section 12. There are fundamentally three 
components, namely, the parties can waive the applicability of 
the sub-section; the said waiver can only take place subsequent 
D 
E 
F 
to dispute having arisen between the parties; and such waiver 
must be by an express agreement in writing. The Seventh 
Schedule has three parts, namely, (i) arbitrator's relationship with 
G 
the parties or counsel; (ii) relationship of the arbitrator to the 
dispute; and (iii) arbitrator's direct or indirect interest in the 
dispute. It is not in dispute that the amended provision that has 
introduced sub-section (5) to Section 12, had enumerated the 
disqualification in the Seventh Schedule. The agreement had 
H 
409 
410 
A 
B 
SUPREME COURT REPORTS 
[2017] 7 S.C.R. 
been entered into before the amendment came into force. The 
procedure for appointment was, thus, agreed upon. It was 
observed by the designated Judge that the amending provision 
does not take away the right of a party to nominate a sole arbitrator, 
otherwise the legislature could have amended other provisions. 
He also observed that the grounds including the objections under 
the Fifth and the Seventh Schedules of the amended Act can be 
raised before the Arbitral Tribunal and further when the 
nominated arbitrator has made the disclosure as required under 
the Sixth Schedule to the Act, there was no justification for 
interference. That apart, he also held in his conclusion that besides 
C the stipulation of the agreement governing the parties, the Court 
has decided to appoint the arbitrator as the sole arbitrator to 
decide the dispute between the parties. [Paras 10, 12, 13, 17J(421-
D-G; 423-A-DJ 
2. Clause (c) states that all disputes which cannot be settled 
D by mutual negotiation shall be referred to and determined by 
arbitration as per the Act, as amended. Clause (c) is independent 
of Clause (d). 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 
E 
F 
arbitration of the Managing Director or his nominee. There is 
no quarrel that by virtue of Section 12(5) of the Act, if any person 
who falls under any of the categories specified in the Seventh 
Schedule shall be ineligible to be appointed as the arbitrator. If 
there is a clause requiring the parties to nominate their respective 
arbitrator, their authority to nominate cannot be questioned. 
What really in that circumstance can be called in question is the 
procedural compliance and the eligibility of their arbitrator 
depending upon the norms provided under the Act and the 
Schedules appended thereto. But, here is a case where the 
Managing Director is the "named sole arbitrator" and he has 
also been conferred with the power to nominate one who can be 
G the arbitrator in his place. Once the arbitrator has become 
ineligible by operation of law, he cannot nominate another as an 
arbitrator. The arbitrator becomes ineligible as per prescription 
contained in Section 12(5) of the Act. It is inconceivable in law 
that person who is statutorily ineligible can nominate a person. 
H 
TRF LTD. v. ENERGO ENGINEERING PR

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